VALUE LINE INC - Annual Report: 2010 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended April 30,
2010
or
¨
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)
|
Registrant's
telephone number, including area code (212)
907-1500
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $.10 par value
|
The
NASDAQ Global MarketSM
|
(Title
of class)
|
(Name
of each exchange on which
registered)
|
Securities
registered pursuant to Section 12 (g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. ¨ Yes
x
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
¨ Yes
x
No
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. x Yes
¨
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
¨ Yes ¨
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulations S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
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 definition of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer x
|
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
The
aggregate market value of the registrant's voting and non-voting common stock
held by non-affiliates at October 30, 2009 was $41,460,389.
There
were 9,981,600 shares of the registrant’s Common Stock outstanding at June 30,
2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s
Proxy Statement relating to the registrant’s 2010 Annual Meeting of
Shareholders, to be held on
August 17, 2010, are
incorporated by reference into Part III of this Annual Report on Form 10-K where
indicated.
TABLE OF
CONTENTS
PART I
|
||
Item 1
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Business
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3
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Item 1A
|
Risk
Factors
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12
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Item 1B
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Unresolved
Staff Comments
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15
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Item 2
|
Properties
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15
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Item 3
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Legal
Proceedings
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15
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Item 4
|
Removed
and Reserved
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15
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PART II
|
||
Item 5
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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15
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Item 6
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Selected
Financial Data
|
16
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Item 7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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17
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Item 7A
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Quantitative
and Qualitative Disclosures About Market Risk
|
27
|
Item 8
|
Financial
Statements and Supplementary Data
|
28
|
Item 9
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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29
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Item 9A
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Controls
and Procedures
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29
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Item 9B
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Other
Information
|
30
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PART III
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||
Item 10
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Directors,
Executive Officers, and Corporate Governance
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31
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Item 11
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Executive
Compensation
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33
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Item 12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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33
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Item 13
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Certain
Relationships and Related Transactions and Director
Independence
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34
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Item 14
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Principal
Accounting Fees and Services
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35
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PART IV
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||
Item 15
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Exhibits
and Financial Statement Schedules
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35
|
2
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, copyright data 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”.
|
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.
Part
I
Item 1.
BUSINESS.
Value
Line, Inc. (the "Company" or “Value Line”), is a New York corporation whose
primary businesses are: (1) producing investment related periodical publications
and making available copyrighted data, including Value Line proprietary ranking
system information and other proprietary information under agreements to third
parties for use in selecting securities for third party marketed products, such
as unit investment trusts, exchange traded funds, annuity products, and other
investments, and (2) providing investment management services to the Value Line
Mutual Funds (“Value Line Funds”), which consist of 14 mutual funds registered
under the Investment Company Act of 1940, and other managed
accounts. These businesses are performed through the Company and its
subsidiaries and consolidate into two business segments: (1) Investment
Periodicals, Related Publications and Copyright Data and (2) Investment
Management.
The
Company was organized in 1982 and is the successor to substantially all of the
operations of Arnold Bernhard & Company, Inc. ("AB&Co."). The
name "Value Line" as used to describe the Company, its products, and its
subsidiaries, is a registered trademark of the Company.
A. Investment
Related Periodicals & Publications
The
investment related periodicals offered by Value Line Publishing Inc. (“VLP”), a
wholly owned subsidiary of the Company, cover a broad spectrum of investments
including stocks, mutual funds, options and convertible
securities. The Company’s periodicals and related services are of
interest to individual and professional investors, as well as to institutions
including municipal and university libraries and investment firms.
The
services generally fall into four categories:
|
·
|
Comprehensive
reference periodical publications
|
|
·
|
Targeted,
niche periodical newsletters
|
|
·
|
Investment
analysis software
|
|
·
|
Current
and historical financial
databases
|
3
The
comprehensive services (The Value Line Investment Survey, The Value Line
Investment Survey-Small and Mid-Cap Edition, The Value Line 600, and The Value
Line Fund Advisor Plus) provide both statistical and text coverage of a large
number of investment securities, with an emphasis placed on Value Line’s
proprietary research, analysis and statistical rankings. The Value
Line Investment Survey is the Company’s premier service published each week
covering approximately 1,700 stocks.
The niche
newsletters (Value Line Select, The Value Line Special Situations Service, The
Value Line Fund Advisor, The Value Line Convertibles Survey and Value Line Daily
Options Survey) provide information on a less comprehensive basis for securities
that the Company believes will be of interest to subscribers. Some,
although not all of these services make use of Value Line’s proprietary
statistical rankings.
Investment
analysis software (The Value Line Investment Analyzer and Mutual Fund Survey for
Windows®) includes data sorting and filtering tools. In addition, for
institutional and professional subscribers, VLP offers current and historical
financial databases (DataFile, Estimates & Projections, Convertibles and
Mutual Funds) via CD-ROM or online.
Value
Line offers online versions of most of its products at the Company’s website,
www.valueline.com. Subscribers to the print versions generally
receive free access to the corresponding online versions, but online subscribers
do not receive a free print edition. The most comprehensive of the
Company’s online efforts is The Value Line Research Center, which allows
subscribers to access most of the Company publications at a packaged price via
the Internet.
The print
and electronic services include, but are not limited to the
following:
The
Value Line Investment Survey®
The Value
Line Investment Survey is a weekly investment related periodical that in
addition to various timely articles on current economic, financial and
investment matters ranks common stocks for future relative performance based
primarily on computer-generated statistics of financial results and stock price
performance. Two of the evaluations for covered stocks are
"Timeliness™" and "Safety™.” Timeliness relates to the probable
relative price performance of one stock over the next six to twelve months, as
compared to the rest of the approximately 1,700 covered
stocks. Rankings are updated each week and range from Rank 1 for the
expected best performing stocks to Rank 5 for the expected poorest
performers. "Safety" Ranks are a measure of risk and are based on the
issuer's relative financial strength and its stock's price
stability. "Safety" ranges from Rank 1 for the least risky stocks to
Rank 5 for the riskiest. VLP employs analysts and statisticians who
prepare articles of interest for each periodical and who evaluate stock
performance and provide future earnings estimates and quarterly written
evaluations with more frequent updates when relevant. The Value Line
Investment Survey is comprised of three parts: The "Summary & Index"
provides updated Timeliness and Safety ranks, selected financial data, and
"screens" of key financial measures; the "Ratings and Reports" section contains
updated reports on about 140 stocks each week; and the “Selection & Opinion”
section provides economic commentary and data, general interest articles, and
four portfolios selected by analysts covering a range of investment
approaches. The Value Line Investment Survey is also referred to as
The Value Line Investment Survey – Standard Edition.
The
Value Line Investment Survey - Small and Mid-Cap Edition
The Value
Line Investment Survey - Small and Mid-Cap Edition is a weekly publication
introduced in 1995 that provides detailed descriptions of approximately 1,800
small and medium-capitalization stocks, many listed on the NASDAQ Exchange,
beyond the approximately 1,700 stocks of generally larger-capitalization
companies covered in The Value Line Investment Survey – Standard
Edition. Similar to The Value Line Investment Survey, the Small and
Mid-Cap Edition has its own "Summary & Index" providing updated performance
ranks and other data, as well as "screens" of key financial
measures. The "Ratings and Reports" section, providing updated
reports on about 140 stocks each week, has been organized to correspond closely
to the industries reviewed in The Value Line Investment Survey – Standard
Edition. A combined Index, published quarterly, allows subscribers to
easily locate a specific stock among the approximately 3,500 stocks covered by
both the Standard and Small and Mid-Cap Editions. One unique feature
in the Small and Mid-Cap Edition is The Performance Ranking
System. It incorporates many of the elements of the Value Line
Timeliness Ranking System, modified to accommodate the approximately 1,800
stocks in the Small and Mid-Cap Edition. The Performance Rank is
based on earnings growth and price momentum, and is designed to predict relative
price performance over the next six to 12 months. The principal
differences between the Small and Mid-Cap Edition and The Value Line Investment
Survey - Standard Edition are that the Small and Mid-Cap Edition does not
include Value Line’s Timeliness Ranks, financial forecasts, analyst comments, or
a Selection & Opinion section. These modifications allow VLP to
offer this service at a price lower than the Standard
Edition.
4
The
Value Line Fund Advisor
The Value
Line Mutual Fund Ranking System was introduced in 1993. It is the
system utilized in the Fund
Advisor product, a 48-page newsletter featuring load, no-load, and
low-load open-end mutual funds. This product was originally introduced as The
Value Line No-Load Fund Advisor in 1994 and augmented in 2009. Each issue offers
strategies for maximizing total return, and model portfolios for a range of
investor profiles. It also includes information about retirement
planning, industry news, and specific fund reviews. A full
statistical review, including latest performance, rankings, and sector
weightings, is updated each month on approximately 800 leading load, no-load and
low-load funds. Included with this product is online access to Value Line’s
database of more than 12,000 mutual funds, including screening tools and
full-page printable reports on each fund. Fund Advisor Plus subscribers have
access to the entire population of more than 18,000 funds.
The
Value Line Special Situations Service
The Value
Line Special Situations Service’s core focus is on smaller companies whose
stocks are perceived by Value Line Publishing’s analysts as having exceptional
appreciation potential. The publication was introduced in
1951. A second portfolio of stocks for more conservative and
income-oriented investors seeking small company exposure was added in
2009.
The
Value Line Daily Options Survey
The Value
Line Daily Options Survey is an online only
service that evaluates and ranks U.S. equity and equity index options
(approximately 200,000). Features include an interactive database, spreadsheet
tools, and a weekly email newsletter. This product is only offered as an online
subscription due to the nature of options volatility and the power of the
Internet to provide a materially enhanced product.
The
Value Line Convertibles Survey
Introduced
in 1972, the service evaluates and ranks over 600 convertible securities (bonds
and preferred stocks) for future market performance. During fiscal
2010, The Value Line Convertibles Survey has also been switched to online only
delivery. By moving to online only delivery, all of the product’s subscribers
can benefit from the newly enhanced website that includes daily price updates,
individual analysis of each security with a printable fact sheet, and a weekly
email newsletter alerting subscribers to recent rank changes.
Value
Line Select
Value
Line Select, a monthly publication, was first published in 1998. It
focuses each month on a company that senior VLP analysts have
chosen. Recommendations are backed by in-depth research and are
subject to ongoing monitoring.
The
Value Line 600
The Value
Line 600 is a monthly service, which contains full-page reports on approximately
600 stocks. Its reports provide information on many actively traded,
larger capitalization issues as well as some smaller growth
stocks. Since it was introduced in fiscal 1996, it has been well
received with investors who want the same type of analysis provided in The Value
Line Investment Survey – Standard Edition, but who do not want or need coverage
of the approximately 1,700 companies contained in that
publication. Readers also receive supplemental reports as well as a
monthly Index, which includes updated statistics.
Value
Line Investment Analyzer
Value
Line Investment Analyzer is a powerful menu-driven software program with fast
filtering, ranking, reporting and graphing capabilities utilizing over 300 data
fields for approximately 7,500 stocks, industries and indices, including the
approximately 1,700 stocks covered in VLP’s flagship publication, The Value Line
Investment Survey.
Value
Line Investment Analyzer allows subscribers to apply more than 60 charting and
graphing variables for comparative research. In addition to containing
digital replicas of the entire Value Line Investment Survey, the Analyzer
includes 20-minute delayed data updates through its integration with the Value
Line databases via the Internet. The software also includes a portfolio
module that lets users create and track their own stock portfolios in depth with
up to five years of historical financial data for scrutinizing performance,
risk, yield and return.
5
Value
Line Mutual Fund Survey for Windows®
Value
Line Mutual Fund Survey for Windows® is a monthly CD-ROM product
with weekly Internet updates. The program features powerful sorting
and filtering analysis tools. It includes features such as style
attribution analysis, a portfolio stress tester, portfolio rebalancing,
correlation of fund returns and hypothetical assets. “For Windows” is
a registered trademark of Microsoft Corp. Value Line, Inc. and Microsoft Corp.
are not affiliated companies.
Value
Line DataFile Products
For our
institutional customers, Value Line offers both current and historical data for
equities, mutual funds, ETFs, and convertibles. All Value Line
DataFile products are offered in Microsoft Access and ASCII formats via
FTP. Below is a listing of the Data File products:
Fundamental
DataFile I and II
Value
Line’s Fundamental DataFile I contains fundamental data (both current and
historical) on approximately 8,000 publicly traded companies that follow US
GAAP. This data product provides annual data from 1955, quarterly from 1963, and
full 10-Q data from 1985. Additionally Value Line offers historical data on over
5,000 companies that no longer exist in nearly 100 industries via our “Dead
Company” File. The Fundamental DataFile has over 400 annual and over 80
quarterly fields for each of the companies included in the
database. DataFile is sold primarily to the institutional and
academic markets. Value Line also offers a scaled down DataFile
product, Fundamental DataFile II, which includes a limited set of historical
fundamental data.
Estimates
and Projections DataFile
This
DataFile offering contains the proprietary estimates from Value Line's security
analysts on approximately 1,700 companies. Data includes earnings, sales, cash
flow, book value, margin, and others popular fields. Projections are
for the year ahead and 3 to 5 years forward.
Mutual
Fund DataFile
In fiscal
1997, VLP introduced the Value Line Mutual Fund DataFile. It covers
over 20,000 mutual funds with up to 20 years of historical data with over 200
data fields. The Mutual Fund DataFile provides monthly pricing, basic
fund information, weekly performance data, sector weights, and many other
popular mutual fund data fields. This file is available for download from the
Internet on a monthly basis.
ETF
DataFile
Introduced
in spring of 2010, this new product is an extensive ETF database containing the
complete listing of every US-listed ETF and every component and component weight
since inception for every ETF on a daily basis. This includes all
rebalancing, cash components, excluded assets, and distributions adjusted
automatically on a daily basis. The data also includes the total return of the
ETF and the total return of the corresponding underlying index on a daily basis.
ETFs are added to the database and corresponding data made available usually by
the first day of trading.
Convertible
DataFile
This
database is one of the largest sources of information available on convertible
securities. Value Line offers data elements on our universe of more than 600
convertible bonds, preferred stocks, and warrants, with our top 150 fundamental
and proprietary data items on each security.
Value
Line Research Center
The Value
Line Research Center provides on-line access to select Company publications
covering stocks, mutual funds, and options and convertible securities as well as
special situation stocks. This service includes full online
subscriptions to The Value Line Investment Survey, The Value Line Fund Advisor
Plus, The Value Line Daily Options Survey, The Value Line Investment Survey - Small and Mid-Cap Edition,
The Value Line Convertibles Survey and The Value Line Special Situations
Service.
6
B. Copyright Data
Fees Programs
The
Company has copyright data, which it distributes under copyright data agreements
for fees, which include certain proprietary ranking system information and other
proprietary information used in third party products, such as unit investment
trusts, variable annuities, managed accounts and exchange traded
funds. The sponsors of these products act as wholesalers and
distribute the products by syndicating them through an extensive network of
national and regional brokerage firms. These broad marketing networks
are assembled and re-assembled each time that a product is introduced into the
retail marketplace by a product sponsor. The sponsors of these
various products will typically receive copyright data for one or more
proprietary ranking systems, which may include Value Line Timeliness, Safety,
Technical and Performance ranks, as screens for their portfolios. The
sponsors are also given permission to associate Value Line trademarks with the
products. Value Line collects a copyright fee from each
of the product sponsors/managers primarily based upon the market value of assets
invested in each product’s portfolio utilizing the Value Line proprietary
data. Since these fees are based on the market value of the
respective portfolios using the Value Line proprietary data, the payments to
Value Line, which are typically received on a quarterly basis, will
fluctuate.
Value
Line’s primary copyright products have been structured as Unit Investment
Trusts, Exchange Traded Funds, annuity products and other types of managed
products, all of which have in common some degree of reliance on ranking systems
for their portfolio creation. Examples of Value Line’s Copyright Data
methodology can be found in the following three Value Line indexed Exchange
Traded Funds now listed on the New York Stock Exchange:
First
Trust Value Line Dividend Fund (FVD)
The FVD
portfolio seeks to provide total return through a combination of current income
and capital appreciation by investing in stocks selected by the third party
using Value Line’s Copyright Data from among U.S. exchange listed securities of
companies that pay above average dividends and have the potential for capital
appreciation.
First
Trust Value Line 100 (FVL)
FVL’s
objective is to provide capital appreciation. It seeks to outperform
the S&P 500 Index by adhering to a disciplined strategy of investing in a
diversified portfolio of the 100 common stocks ranked #1 using Value Line's
Copyright Data included in the Timeliness Ranking System.
First
Trust Value Line Equity Allocation Fund (FVI)
The FVI
portfolio invests in a subset of the #1 and #2 ranked stocks selected from Value
Line’s Copyright Data per the Value Line Timeliness, Safety, and Technical
Ranking Systems. The third party authorized to use the Value Line Copyright Data
purchases stocks in the index generated by the Company with the objective of
capital appreciation.
Total
assets managed by third parties participating in the copyright data programs
were approximately $2.6 billion as of April 30, 2010, through four
clients.
7
C. Investment
Management Services
As of
April 30, 2010, the Company, though its subsidiary, EULAV Asset Management, LLC
(“EULAV”), is the investment adviser for the Value Line Mutual
Funds. Of the fourteen funds managed by the Company, shares of Value
Line Strategic Asset Management Trust (“SAM”) and Value Line Centurion Fund are
available to the public only through the purchase of certain variable annuity
and variable life insurance contracts issued by The Guardian Insurance &
Annuity Company, Inc. (“GIAC”). All fourteen of the Value Line Funds are managed
by portfolio managers employed by EULAV.
EULAV
Securities, Inc., (“ESI”), a wholly-owned subsidiary of the Company, is the
distributor for the Value Line Funds. State Street Bank, an
unaffiliated entity, is the custodian of the Funds' assets and provides fund
accounting and administrative services to the Value Line
Funds. Shareholder services for the Value Line Funds are provided by
Boston Financial Data Services, an affiliate of State Street Bank.
During
fiscal 2010, the Company’s investment management business faced volatile market
conditions. The market segments favored by the Company’s investment
management style, which emphasizes quality growth stocks, did not lead the
market. As a result, the Value Line Funds underperformed their
peers and the fund complex had net
redemptions. While total fund assets remained relatively unchanged
from the previous year, the S&P 500 stock index and Russell 2000 increased
39% and 49% respectively for the one year ended April 30, 2010. In
fixed income markets, the Barclays Capital U.S. Aggregate Bond Index increased
by 8.3% for the same one year period.
Total net
assets of the Value Line Funds at April 30, 2010, were:
(in thousands)
|
||||
Value
Line Emerging Opportunities Fund, Inc.
|
$ | 421,527 | ||
Value
Line Strategic Asset Management Trust
|
366,108 | |||
Value
Line Income and Growth Fund, Inc.
|
349,553 | |||
Value
Line Premier Growth Fund, Inc.
|
322,616 | |||
Value
Line Larger Companies Fund, Inc.
|
198,181 | |||
Value
Line US Government Money Market Fund, Inc.
|
132,103 | |||
Value
Line Centurion Fund, Inc.
|
128,897 | |||
Value
Line Fund, Inc.
|
95,873 | |||
Value
Line U.S. Government Securities Fund, Inc.
|
86,442 | |||
Value
Line Tax Exempt Fund, Inc.
|
83,738 | |||
Value
Line Asset Allocation Fund, Inc.
|
58,355 | |||
Value
Line Convertible Fund, Inc.
|
25,884 | |||
Value
Line Aggressive Income Trust
|
37,003 | |||
Value
Line New York Tax Exempt Trust
|
16,801 | |||
$ | 2,323,081 |
8
The
following table shows the change in assets for the past three fiscal years
including sales (inflows), redemptions (outflows), dividends and capital gain
distributions, and market value change. Inflows for sales, and outflows for
redemptions reflect decisions of individual investors. The table illustrates the
assets within the Value Line Funds broken down into equity funds, variable
annuity funds and fixed income funds.
Asset
Flows
For the Years Ended April 30,
|
2010
|
2009
|
2008
|
2010 vs. 2009
|
2009 vs. 2008
|
|||||||||||||||
Value
Line equity fund assets (excludes variable annuity) -
beginning
|
$ | 1,445,168,855 | $ | 2,499,824,428 | $ | 2,365,455,062 | -42.2 | % | 5.7 | % | ||||||||||
Sales/inflows
|
119,362,892 | 400,940,827 | 734,320,549 | -70.2 | % | -45.4 | % | |||||||||||||
Redemptions/outflows
|
(516,461,559 | ) | (575,670,435 | ) | (463,302,268 | ) | -10.3 | % | 24.3 | % | ||||||||||
Dividends
and Capital Gain Distributions
|
(6,832,954 | ) | (35,888,690 | ) | (157,842,692 | ) | -81.0 | % | -77.3 | % | ||||||||||
Market value change
|
404,867,720 | (844,037,275 | ) | 21,193,777 | N/A | N/A | ||||||||||||||
Value Line equity fund assets (non-variable
annuity) - ending
|
1,446,104,954 | 1,445,168,855 | 2,499,824,428 | 0.1 | % | -42.2 | % | |||||||||||||
Variable
annuity fund assets - beginning
|
$ | 453,958,992 | $ | 808,054,829 | $ | 919,105,496 | -43.8 | % | -12.1 | % | ||||||||||
Sales/inflows
|
42,428,972 | 127,997,022 | 110,791,953 | -66.9 | % | 15.5 | % | |||||||||||||
Redemptions/outflows
|
(82,785,322 | ) | (113,787,522 | ) | (158,083,687 | ) | -27.2 | % | -28.0 | % | ||||||||||
Dividends
and Capital Gain Distributions
|
(32,487,231 | ) | (112,587,503 | ) | (88,296,739 | ) | -71.1 | % | 27.5 | % | ||||||||||
Market value change
|
113,888,908 | (255,717,834 | ) | 24,537,805 | N/A | N/A | ||||||||||||||
Variable annuity fund assets -
ending
|
495,004,319 | 453,958,992 | 808,054,828 | 9.0 | % | -43.8 | % | |||||||||||||
Fixed
income fund assets - beginning
|
$ | 248,927,635 | $ | 266,172,054 | $ | 291,586,126 | -6.5 | % | -8.7 | % | ||||||||||
Sales/inflows
|
26,239,120 | 32,599,409 | 21,875,605 | -19.5 | % | 49.0 | % | |||||||||||||
Redemptions/outflows
|
(36,388,184 | ) | (33,028,853 | ) | (37,617,308 | ) | 10.2 | % | -12.2 | % | ||||||||||
Dividends
and Capital Gain Distributions
|
(8,277,052 | ) | (378,440 | ) | (3,635,147 | ) | N/A | -89.6 | % | |||||||||||
Market value change
|
19,366,807 | (16,436,535 | ) | (6,037,221 | ) | N/A | 172.3 | % | ||||||||||||
Fixed income fund assets -
ending
|
249,868,326 | 248,927,635 | 266,172,055 | 0.4 | % | -6.5 | % | |||||||||||||
Money market fund assets -
ending
|
132,102,912 | 181,573,202 | 219,498,418 | -27.2 | % | -17.3 | % | |||||||||||||
Assets under management -
ending
|
$ | 2,323,080,511 | $ | 2,329,628,685 | $ | 3,793,549,729 | -0.3 | % | -38.6 | % |
The next
table provides a breakdown of the major distribution channels for the Value Line
Funds in terms of assets and shareholder accounts as of April 30,
2010.
Fund Categories
|
Aggregate Asset
Levels
|
Percentage of Assets
in Category
|
Shareholder
Accounts
|
Percentage of Shareholder
Accounts in Category
|
||||||||||||
Guardian
(SAM and Centurion Funds)
|
$ | 495,004,000 | 21.3 | % | 32,405 | 21.5 | % | |||||||||
Value
Line Funds direct accounts & other dealers
|
$ | 1,015,050,000 | 43.7 | % | 55,171 | 36.6 | % | |||||||||
Top
five dealer platforms
|
$ | 813,027,000 | 35.0 | % | 63,128 | 41.9 | % | |||||||||
Total
|
$ | 2,323,081,000 | 100.0 | % | 150,704 | 100.0 | % |
9
Investment
management fees and service and distribution fees vary among the Value Line
Funds and may be subject to certain limitations. Investment
strategies among the equity funds include, but are not limited to, reliance on
the Value Line Timeliness ™ Ranking System (the “Ranking System”) and/or the
Value Line PerformanceTM Ranking
System in selecting securities for purchase or sale. The Ranking
System compares an estimate of the probable market performance of each stock
during the next six to twelve months to that of all of the approximately 1,700
stocks under review and ranks stocks on a scale of 1 (highest) to 5 (lowest).
All the stocks followed by the Ranking System are listed on U.S. stock exchanges
or traded in the U.S. over-the-counter markets. Prospectuses and
annual reports for each of the Value Line open end mutual funds are available on
the Funds’ website www.vlfunds.com. Each
mutual fund may use "Value Line" in its name only so long as the Company or one
of its affiliates acts as its investment adviser.
In
addition to managing the Value Line Funds, EULAV manages assets within
separately managed accounts of institutions and high net worth
individuals. For these services, the Company is paid an advisory
fee. The Company’s separately managed accounts as of year end April
30, 2010 have $48 million in assets, no change since April 30, 2009 and down
from $217 million at April 30, 2008. Of the $48 million, $24 million
is affiliated with AB&Co. Assets within the separately managed accounts
are held at third party custodians, are subject to the terms of each advisory
agreement and do not have any advance notice requirement for withdrawals.
However, they generally have an advance notice requirement for termination
of the account.
D. Wholly-Owned
Operating Subsidiaries
Wholly
owned subsidiaries of the Company include Value Line Publishing, Inc. (“VLP”),
EULAV Securities, Inc., (“ESI”), EULAV Asset Management, LLC (“EULAV”),
Vanderbilt Advertising Agency, Inc. (“VAA”), Compupower Corporation (“CPWR”) and
Value Line Distribution Center (“VLDC”).
|
1.
|
VLP
is the publishing unit for the investment related periodical publications
and copyright data.
|
|
2.
|
ESI
is registered as a broker-dealer and is a member of the Financial Industry
Regulatory Authority, also known as “FINRA”. ESI, formerly
Value Line Securities, Inc., is the distributor for the Value Line
Funds. Shares of the Value Line Funds are sold to the public
without a sales charge (i.e., on a "no-load" basis). ESI
receives service and distribution fees, in accordance with compensatory
plans, pursuant to rule 12b-1 of the Investment Company Act of 1940 from
certain Value Line Funds.
|
|
3.
|
EULAV
is a registered investment adviser that assumed the mutual fund investment
management services previously provided by Value Line, Inc., as of June
30, 2008.
|
|
4.
|
VAA
places advertising on behalf of the Company's publications, investment
advisory services, and mutual
funds.
|
|
5.
|
CPWR
provides subscription fulfillment services and subscriber relations
services for VLP publications.
|
|
6.
|
VLDC
primarily handles all of the mailings of the publications to VLP’s
subscribers. Additionally, VLDC provides office space for
Compupower’s subscriber relations and data processing departments, and
provides a disaster recovery site for the New York
operations.
|
E. Trademarks
The
Company holds trademark and service mark registrations for various names and
logos in multiple countries. Value Line believes that these trademarks and
service marks provide significant value to the Company and are an important
factor in the marketing of its products and services.
10
F. Investments
The
Company invests in the Value Line Funds, fixed income obligations and other
marketable securities. As of April 30, 2010, the Company had
$15,943,000 invested in the Value Line U.S. Government Money Market Fund,
representing less than 1% of total Value Line Funds net assets at April 30, 2010
and 12% of the Value Line U.S. Government Money Market Fund at April 30,
2010.
G. Employees
At April
30, 2010, the Company and its subsidiaries employed 181 people.
The
Company, its affiliates, officers, directors and employees, may from time to
time own securities which are also held in the portfolios of the Value Line
Funds or recommended in the Company's publications. Analysts are not
permitted to own securities of the companies they cover. The Company
has adopted rules requiring reports of securities transactions by employees for
their respective accounts. The Company has also established policies
restricting trading in securities whose ranks are about to change in order to
avoid possible conflicts of interest.
H. Principal
Business Segments
The
information with respect to revenues from external customers and profit and loss
of the Company's identifiable principal business segments is incorporated herein
by reference to Note 9 of the Notes to the Company's Consolidated Financial
Statements included in this Annual Report on Form 10-K.
The
Company's assets identifiable to each of its principal business segments were as
follows:
April
30,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
(in
thousands)
|
||||||||||||
Investment
Periodicals, Related Publications and Copyright
Data
|
$ | 12,734 | $ | 11,867 | $ | 10,780 | ||||||
Investment
Management
|
9,397 | 22,914 | 76,671 | |||||||||
Corporate
Assets
|
37,854 | 82,774 | 50,502 | |||||||||
$ | 59,985 | $ | 117,555 | $ | 137,953 |
I. Competition
The
investment management and the investment information and publications industries
are very competitive. There are many competing firms and a wide
variety of product offerings. Some of the firms in these industries
are substantially larger and have greater financial resources than the
Company. The Internet continues to increase the amount of competition
in the form of free and paid online investment research. The
prevalence of broker supermarkets or platforms permitting easy transfer of
assets among mutual funds, mutual fund families, and other investment vehicles
tends to increase the speed with which fund shareholders can leave or enter the
Value Line Funds based on short-term fluctuations in
performance.
11
J. Executive
Officers of the Registrant
The
following table lists the names, ages (at June 30, 2010), and principal
occupations and employment during the past five years of the Company's Executive
Officers. All officers are elected to terms of office for one
year. Except as noted, each of the following has held an executive
position with the companies indicated for at least five years.
Name
|
Age
|
Principal
Occupation or Employment
|
||
Howard
A. Brecher
|
56
|
Acting
Chairman and Acting CEO since November 2009; Chief Legal Officer;
Vice President; Secretary until January 2010; Vice President and
Secretary of each of the Value Line Funds since June 2008; Secretary
of EULAV since February 2009; Vice President, Secretary,
Treasurer and General Counsel of AB&Co.
|
||
Mitchell
E. Appel
|
39
|
Chief Financial
Officer since April 2008 and from September 2005 to November
2007; President of each of the Value Line Funds since June 2008; President
of EULAV and ESI since February 2009; Treasurer of the Company from June
to September 2005; Chief Financial Officer, XTF Asset Management from
November 2007 to April 2008.
|
||
Stephen
R. Anastasio
|
51
|
Treasurer
since September 2005; Treasurer of each of the Value Line Funds September
2005 to August 2008; Chief Financial Officer from 2003 to September
2005.
|
||
Thomas
T. Sarkany
|
|
64
|
|
Director
of Mutual Fund Marketing; Director of Copyright Data; Secretary since
January 2010.
|
WEB SITE
ACCESS TO SEC REPORTS
The
Company’s Internet site address is www.valueline.com. The
Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and any amendments to these reports are available on the
“Corporate Filings” page under the “About Value Line” tab of the Company’s
Internet site as soon as reasonably practicable after the reports are filed
electronically with the Securities and Exchange Commission
(“SEC”). All Company filings are also available on the SEC Internet
site, www.sec.gov as soon as
reasonably practicable after electronic filing.
ITEM
1A. RISK FACTORS
In
addition to the risks referred to elsewhere in this Annual Report on Form 10-K,
the following risks, among others, sometimes may have affected, and in the
future could affect, the Company and its subsidiaries’ business, financial
condition or results of operations. The risks described below are not
the only ones facing the Company and its subsidiaries. Additional
risks not discussed or not presently known to the Company or that the Company
currently deems insignificant may also impact its business, brand and stock
price.
12
The Company and
its subsidiaries are dependent on the efforts of its executives and professional
staff.
The
Company’s future success relies upon its ability to retain and recruit qualified
professionals and executives. While the Company has back-up staff for
most positions, it is nevertheless possible that the loss of the services of key
personnel could have an adverse effect on the Company.
The
Company’s assets under management, which impact revenue, are subject to
fluctuations based on market conditions and individual fund
performance.
Financial
market declines and/or adverse changes in interest rates would generally
negatively impact the level of the Company’s assets under management and
consequently its revenue and net income. Major sources of investment
management revenue for the Company (i.e., investment management and service and
distribution fees) are calculated as percentages of assets under
management. A decline in securities prices or in the sale of
investment products or an increase in fund redemptions would reduce fee
income. A prolonged recession or other economic or political events
could also adversely impact the Company’s revenue if it led to a decreased
demand for products, a higher redemption rate, or a decline in securities
prices. Good performance of managed assets relative to both competing
products and benchmark indices generally assists retention and growth of assets,
resulting in additional revenues. Conversely, poor performance of
managed assets relative to both competing products and benchmark indices tends
to result in decreased sales and increased redemptions with corresponding
decreases in revenues to the Company. Poor performance could,
therefore, have an adverse effect on the Company’s business and results of
operations.
The Company
derives almost all of its investment management fees from the Value Line
Funds.
The
Company is dependent upon management contracts and service and distribution
contracts with the Value Line Funds under which these fees are
paid. As required in the mutual fund industry, the Board of Directors
of the Value Line Funds, a majority of whom are independent of the Company, may
elect to terminate such contracts. If any of these contracts are
terminated, not renewed, or amended to reduce fees, the Company’s financial
results may be adversely affected.
If the Company
does not maintain subscription revenue, its operating results could
suffer.
A
substantial portion of the Company’s revenue is generated from print and
electronic subscriptions. VLP’s trial and full term subscriptions are
typically paid in advance by subscribers. Unearned revenues are
accounted for on the balance sheet of the Company. The backlog of
orders is primarily generated through renewals and new subscription marketing
efforts as the Company deems appropriate. Future results will depend
on the renewal of existing subscribers and obtaining new subscriptions for the
investment publications. The availability of free or low cost
information on the Internet could negatively impact demand for VLP’s
publications or impact its pricing. Copyright Data agreements are
based on market interest in the respective proprietary
information. If the sales of the Company’s publications or fees from
proprietary information decline, its operating results could
suffer.
Failure
to protect its intellectual property rights and proprietary information could
harm the Company’s ability to compete effectively and could negatively affect
operating results.
The
Company’s trademarks and tradenames are important assets to the
Company. Although its trademarks are registered in the United States
and in certain foreign countries, the Company may not always be successful in
asserting global trademark or tradename protection. In the event that other
parties infringe on its intellectual property rights and it is not
successful in defending its intellectual property rights, the result may be a
dilution in the value of the Company’s brands in the marketplace. If the value
of its brands becomes diluted, or if competitors introduce brands that cause
confusion with its brands in the marketplace, such developments could adversely
affect the value that its customers associate with its brands, and thereby
negatively impact its sales. Any infringement of our intellectual property
rights would also likely result in a commitment of Company resources to protect
these rights through litigation or otherwise. In addition, third parties may
assert claims against our intellectual property rights and we may not be able
successfully to resolve such claims.
13
Adverse changes
in market and economic conditions could lower demand for the Company’s products
and services.
The
Company provides its products and services to individual investors, financial
advisors, and institutional clients. Adverse conditions in the financial and
securities markets may have an impact on the Company’s investment
management revenues, securities income, subscriptions, and copyright data fees
which could cause material changes in the Company’s operating
results.
The
Company faces significant competition in the fields of publishing and investment
management.
The
Company competes with a large number of domestic and foreign investment
management firms, broker-dealers and investment publishing firms offering
competing products and services. Many of its competitors have greater
resources and assets under management. The absence of significant
barriers to entry by new investment management firms in the mutual fund industry
increases competitive pressure and some investors may prefer to invest with an
investment manager that is not publicly traded. Entry barriers in
publishing investment periodicals have been reduced by the minimal cost
structure of the Internet and other technologies. Competition is
based on various factors, including business reputation, investment performance,
quality of service, marketing, distribution services offered, the range of
products offered and fees charged. Since the Company is smaller than
other companies in some of its product segments, adverse business developments
may have an impact on the Company’s operating results.
Government
regulations, any changes to government regulations, and regulatory proceedings
and litigation may adversely impact the business of the Company.
Changes
in legal, regulatory, accounting, tax and compliance requirements could have an
effect on the Company’s operations and results, including but not limited to
increased expenses and restraints on marketing certain funds and other
investment products offered by the Company. EULAV Asset Management,
LLC is registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940. The Investment Advisers Act imposes
numerous obligations on registered investment advisers, including fiduciary,
record keeping, operational and disclosure obligations. EULAV
Securities, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the Financial Industry Regulatory Authority, also
known as “FINRA”. Each Value Line Fund is a registered investment
company under the Investment Company Act of 1940. This Act requires
numerous compliance measures, which must be observed, and involves regulation by
the SEC. Each fund and its shareholders may face adverse tax
consequences if the Value Line Funds are unable to maintain qualification as
registered investment companies under the Internal Revenue Code of 1986, as
amended. Those laws and regulations generally grant broad
administrative powers to regulatory agencies and bodies such as the SEC and
FINRA. If these agencies and bodies believe that the Company and its
subsidiaries or the Value Line Funds have failed to comply with their laws and
regulations, these agencies and bodies have the power to impose
sanctions. The Company and the Value Line Funds, like other
companies, can also face lawsuits by private parties. The Company,
along with its directors and officers, has been sued from time to
time. Regulatory proceedings and lawsuits are subject to
uncertainties, and the outcomes are difficult to predict. Changes in
laws, regulations or governmental policies, and the costs associated with
compliance, could adversely affect the business and operations of the Company
and the Value Line Funds. An adverse resolution of any regulatory
proceeding or lawsuit against the Company, its directors, officers, or its
subsidiaries could result in substantial costs or reputational harm to the
Company and its subsidiaries or to the Value Line Funds and have an adverse
effect on the business and operations of the Company or the Value Line
Funds. As noted under “Legal Proceedings,” the Company settled an SEC
investigation during fiscal year 2010. The former CEO and indirect
majority shareholder has not yet complied with the portion of the settlement
order that requires her to disassociate from EULAV and ESI. If the
terms of the SEC Settlement order are not complied with, the Company, its
regulated subsidiaries EULAV and/or ESI may be further impacted in an adverse
way impacting the Company’s ability to operate a registered investment adviser
or broker/dealer and may result in an adverse effect to the investment
management segment of the business.
14
Terrorist
attacks could adversely affect the Company.
A
terrorist attack, including biological or chemical weapons attacks, and the
response to such terrorist attacks, could have a significant impact on the New
York City area, the local economy, the United States economy, the global
economy, and U.S. and/or global financial markets and could also have a material
adverse effect on the Company’s business.
Item 1B.
UNRESOLVED STAFF COMMENTS.
None.
Item 2.
PROPERTIES.
The
Company leases approximately 64,000 square feet of office space at 220 East
42nd
Street in New York. The lease expires May 2013. In addition to
the New York, NY office space, the Company owns a warehouse facility with
approximately 85,000 square feet in New Jersey. The facility
primarily serves the distribution operations for the various Company
publications and the fulfillment operations of CPWR for the publications and
serves as a disaster recovery site for the Company. The Company
believes the capacity of these facilities is sufficient to meet the Company's
current and expected future requirements.
Item 3.
LEGAL PROCEEDINGS.
On
November 4, 2009, the Company, ESI, and two former officers and directors of the
Company concluded a settlement with the Securities and Exchange Commission
(“SEC”) as a result of an investigation regarding the execution of portfolio
transactions on behalf of the Value Line Funds managed by the Company (the
“Settlement”). In connection with the Settlement, the Company
recorded a provision for settlement of $48,106,000, of which $43,706,000 was
paid to the SEC in November 2009 representing disgorgement of commissions
received in the amount of $24,168,979, prejudgment interest of $9,536,786, and a
civil penalty in the amount of $10,000,000. Pursuant to Section
308(a) of the Sarbanes-Oxley Act of 2002, a fund will be created for The
Company’s disgorgement, interest and penalty (“Fair Fund”). The Company will
bear all costs associated with any Fair Fund distribution, including retaining a
third party consultant approved by the SEC staff to administer any Fair Fund
distribution. Additional
information about the Settlement is included in the Form 8-K filed by the
Company on November 4, 2009, Item 1-Note 10 of the Form 10-Q filed by the
Company with the SEC on December 15, 2009 and Note 14 to the financial
statements included in this report on Form 10-K, each of which is incorporated
herein by reference. As
of the date of this report, the former CEO and indirect majority shareholder has
not yet complied with the portion of the settlement order that requires her to
disassociate from EULAV and ESI. The Company and the indirect
majority shareholder are exploring various alternatives to comply with the
disassociation requirement. The Company cannot estimate the impact to
its business or financial condition or results of operations if the remaining
terms of the settlement order are not met in a timely manner.
On
September 3, 2008, VLI was served with a derivative shareholder's suit filed in
New York County Supreme Court naming VLI's current and former Directors and
alleging breach of fiduciary duty and related allegations, all arising from the
SEC matter. The complaint sought return of remuneration by the Directors and
other remedies. A second derivative shareholder's suit was filed in New York
County Supreme Court on or about November 9, 2009, naming certain current and
former VLI Directors and VLI's parent, AB&Co., as defendants. This suit
primarily restates the same or similar allegations and seeks similar remedies as
were sought in the earlier derivative shareholder's suit served in September
2008. By order dated January 8, 2010, the Court granted Plaintiffs' motion to
consolidate the two cases. Defendants' time to answer, move or otherwise respond
to the consolidated amended complaint has been adjourned until August 20, 2010.
VLI has advised its insurance carriers of these developments and it is not
possible to estimate an amount or range of loss on VLI's financial
statements.
Item 4.
(Removed and Reserved)
Part
II
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
The
Registrant's Common Stock is traded on the NASDAQ Global MarketSM under
the symbol “VALU”. The approximate number of record holders of the
Registrant's Common Stock at April 30, 2010 was 51. As of June 30, 2010,
the closing stock price was $18.14.
15
The
reported high and low prices and the dividends paid on these shares during the
past two fiscal years were as follows:
Quarter Ended
|
High
|
Low
|
Dividend Declared Per Share
|
|||||||||
April
30, 2010
|
$ | 27.25 | $ | 19.86 | $ | 3.00 | ||||||
January
31, 2010
|
$ | 28.48 | $ | 24.33 | $ | .20 | ||||||
October
31, 2009
|
$ | 32.85 | $ | 29.29 | $ | .20 | ||||||
July
31, 2009
|
$ | 36.52 | $ | 30.70 | $ | .20 | ||||||
April
30, 2009
|
$ | 32.48 | $ | 24.30 | $ | .30 | ||||||
January
31, 2009
|
$ | 39.98 | $ | 33.44 | $ | .40 | ||||||
October
31, 2008
|
$ | 39.99 | $ | 30.97 | $ | .40 | ||||||
July
31, 2008
|
$ | 37.97 | $ | 30.24 | $ | .40 |
On July 15, 2010 the
Board of Directors of Value Line, Inc. declared a quarterly dividend of
$0.20 per share to
shareholders of record as of July 29, 2010 to be paid on August 12,
2010.
As of the
date of this Annual Report on Form 10-K, there were no securities of the Company
authorized for issuance under equity compensation plans. The Company
did not sell any unregistered shares of common stock during Fiscal
2010.
There
were no purchases of the Company’s equity securities by the Company or any
affiliated purchaser during the fiscal quarter ended April 30,
2010.
Item 6.
SELECTED FINANCIAL DATA.
Earnings
per share for each of the fiscal years shown below are based on the weighted
average number of shares outstanding.
Years ended April 30,
|
||||||||||||||||||||
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||||||
(in
thousands, except per share amounts)
|
||||||||||||||||||||
Revenues:
|
||||||||||||||||||||
Investment
periodicals and related publications
|
$ | 35,965 | $ | 39,935 | $ | 42,791 | $ | 45,619 | $ | 47,703 | ||||||||||
Copyright
data fees
|
$ | 3,243 | $ | 4,333 | $ | 7,066 | $ | 6,861 | $ | 5,016 | ||||||||||
Investment
management fees and services
|
$ | 18,932 | $ | 24,973 | $ | 32,821 | $ | 31,155 | $ | 32,467 | ||||||||||
Total revenues
|
$ | 58,140 | $ | 69,241 | $ | 82,678 | $ | 83,635 | $ | 85,186 | ||||||||||
Income/(loss)
from operations
|
$ | (32,190 | ) | $ | 24,223 | $ | 34,450 | $ | 35,636 | $ | 35,180 | |||||||||
Net
income/(loss)
|
$ | (23,188 | ) | $ | 22,953 | $ | 25,550 | $ | 24,607 | $ | 23,439 | |||||||||
Earnings/(loss)
per share, basic and fully diluted
|
$ | ( 2.32 | ) | $ | 2.30 | $ | 2.56 | $ | 2.47 | $ | 2.35 | |||||||||
Total
assets
|
$ | 59,985 | $ | 117,555 | $ | 137,953 | $ | 128,963 | $ | 119,214 | ||||||||||
Cash
dividends declared per share
|
$ | 3.60 | $ | 1.50 | $ | 1.20 | $ | 1.15 | $ | 1.00 |
16
Item
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) is intended to help a reader understand Value
Line, its operations and business factors. The MD&A should be
read in conjunction with Item 1, Business, Item 1A, Risk Factors, and in
conjunction with the consolidated financial statements and the accompanying
notes contained in Item 8 of this report.
The
MD&A includes the following subsections:
|
·
|
Executive
Summary of the Business
|
|
·
|
Results
of Operations
|
|
·
|
Liquidity
and Capital Resources
|
|
·
|
Critical
Accounting Estimates and Policies
|
Executive
Summary of the Business
The
Company's primary businesses are: (1) producing investment related periodical
publications and making available copyright data including certain Value Line
proprietary ranking system information and other proprietary information under
agreements to third parties for use in selecting securities for third party
marketed products, such as unit investment trusts, exchange traded funds, other
annuity products, and (2) providing investment management services to the Value
Line Funds and other managed accounts.
The
Company’s target audiences within the investment related periodical publications
field are individual investors, colleges, libraries, and investment management
professionals. Individuals come to Value Line for complete research
in one package. Institutional subscribers, such as libraries and
universities, offer the Company’s detailed research to their patrons and
students. Investment management professionals use the research and
historical information in their day to day businesses.
Depending
upon the product, the Company offers three months or less, annual
and/or multi-year subscriptions. Generally, all subscriptions
are paid for in advance of fulfillment. Renewal orders for the retail
market are solicited primarily through a series of efforts that include letters,
email, and telemarketing. New orders are generated primarily from
targeted direct mail campaigns for specific products. Other sales
channels used by the Company include advertising in media publications, the
Internet, cross selling via telesales efforts and Internet promotions through
third parties.
Institutional
subscribers consist of corporations, financial professionals, colleges, and
municipal libraries. The Company has a dedicated department that
solicits institutional subscriptions. Fees for institutional services
vary by the university or college enrollment, number of users, and the number of
products purchased.
Cash
received for retail and institutional orders is recorded as unearned revenue
until the order is fulfilled. As the subscriptions are fulfilled, the
Company recognizes revenue in equal installments over the life of the particular
subscription. Accordingly, the amount of subscription fees to be earned by
fulfilling subscriptions after the date of the balance sheet is shown as
unearned revenue within current and long-term liabilities. Changes in unearned
revenue generally indicate the trend for subscription revenues over the
following year as the current portion of unearned revenue is expected to be
recognized as revenue within 12 months.
The
Company’s businesses consolidate into two business segments. The
investment related periodical publications (retail and institutional) and fees
from copyright data including proprietary ranking system information and other
proprietary information consolidate into one segment entitled Investment
Periodicals, Publications and Copyright Data. The second segment
consolidates the investment management services to the Value Line Funds and
other managed accounts into a business segment entitled Investment
Management.
17
Business
Environment
During
the Company’s fourth quarter ended April 30, 2010, the global financial markets
continued to improve from the March 2009 market lows. The NASDAQ and
the Dow Jones Industrial Average declined 39.1% and 38.6% respectively from the
end of September 2008 to March 9, 2009. From that point to April 30,
2010, those indices have rallied nearly 94% and 68%,
respectively. For the fiscal year ended April 30, 2010, the NASDAQ
and Dow Jones Industrial Average were up 43% and 35%,
respectively. But the severe downturn and volatility in the financial
markets throughout the prior fiscal year continue to negatively impact the
Company’s revenues, assets under management and the assets attributable to third
party copyright data partners as compared to the twelve months of the previous
fiscal year. Although we have not suffered a fundamental change in
our business model, the business environment remains challenging for our
business. In response, we continue to be diligent both in our
operational and marketing execution and in controlling expenses.
Results
of Operations
The
operating results of the Company for fiscal year 2010 show its worst performing
year since going public in 1982 due to the provision for the SEC Settlement,
which was reached in November 2009. Excluding the SEC Settlement, the
Company was profitable in its operations, albeit, revenues from each business
line to be discussed in further detail, have deteriorated from the previous
year.
The
following table illustrates the key earnings figures for each of the three years
ended April 30, 2010, 2009, and 2008.
Year Ended April 30,
|
|
|
|
|
||||||||||||||||
(in thousands, except earnings/(loss) per share) |
Percentage Change
|
|||||||||||||||||||
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
|||||||||||||||
Earnings/(loss)
per share
|
$ | (2.32 | ) | $ | 2.30 | $ | 2.56 |
NMF
|
-10.2 | % | ||||||||||
Net
income/(loss)
|
$ | (23,188 | ) | $ | 22,953 | $ | 25,550 |
NMF
|
-10.2 | % | ||||||||||
Operating
income/(loss)
|
$ | (32,190 | ) | $ | 24,223 | $ | 34,450 |
NMF
|
-29.7 | % | ||||||||||
Operating
expenses
|
$ | 90,330 | $ | 45,018 | $ | 48,228 | 100.7 | % | -6.7 | % | ||||||||||
Income
from securities transactions, net
|
$ | 837 | $ | 11,625 | $ | 6,294 | -92.8 | % | 84.7 | % |
* NMF –
not meaningful figure
For the
twelve months ended April 30, 2010, the Company’s net loss of $23,188,000 or
$2.32 per share was $46,141,000 below net income of $22,953,000 or $2.30 per
share for the twelve months ended April 30, 2009. Net income for the
fourth quarter ended April 30, 2010 of $2,445,000 or $0.25 per share was
$1,172,000 or 32% below net income of $3,617,000 or $0.36 per share for the
fourth quarter of the prior fiscal year. The operating loss, including the SEC
Settlement, was $32,190,000 for the twelve months ended April 30, 2010, which
was $56,413,000 below the operating income of $24,223,000 last fiscal year. The
operating and net losses of the Company were a result of the Company recording a
provision for the SEC Settlement of $48,106,000. Excluding the
provision for the SEC Settlement and a one-time charge of $727,000 for the write
down of development software, operating income for the twelve months ended April
30, 2010 of $16,643,000 was $7,580,000 or 31% below last fiscal
year. Operating income of $2,578,000 for the fourth quarter ended
April 30, 2010 was $3,294,000 or 56% below operating income of $5,872,000 for
the fourth quarter of the prior fiscal year. Inclusive of the
$48,106,000 provision for the SEC Settlement, the write off of a software
project, and payment of a special $3 per share common stock dividend,
shareholders’ equity of $21,448,000 at April 30, 2010 was 74% lower than
shareholders’ equity of $80,869,000 at April 30, 2009.
18
Operating
revenues, which consist of investment periodicals, and related publications
revenues, copyright data fees, and investment management fees and services, all
declined for the twelve months ended April 30, 2010.
Operating
revenues and % of total by year
|
||||||||||||||||||||||||||||||||
Year Ended April 30,
|
2010
|
2009
|
2008
|
Percentage Change
|
||||||||||||||||||||||||||||
(in thousands)
|
$$
|
%
|
$$
|
%
|
$$
|
%
|
10 vs 09
|
09 vs 08
|
||||||||||||||||||||||||
Investment
periodicals and related publications
|
$ | 35,965 | 61.9 | % | $ | 39,935 | 57.7 | % | $ | 42,791 | 51.8 | % | -9.9 | % | -6.7 | % | ||||||||||||||||
Copyright
data fees
|
$ | 3,243 | 5.5 | % | $ | 4,333 | 6.2 | % | $ | 7,066 | 8.5 | % | -25.2 | % | -38.7 | % | ||||||||||||||||
Investment
management fees and services
|
$ | 18,932 | 32.6 | % | $ | 24,973 | 36.1 | % | $ | 32,821 | 39.7 | % | -24.2 | % | -23.9 | % | ||||||||||||||||
Total
Operating Revenues
|
$ | 58,140 | $ | 69,241 | $ | 82,678 | -16.0 | % | -16.3 | % |
Investment
periodicals and related publications revenues
Investment
periodicals and related publications revenues were down $3,970,000 or 10% for
the twelve months ended April 30, 2010 as compared to the prior fiscal
year. While the Company continues to attract new subscribers through
various marketing channels, primarily direct mail and the Internet, total
product line circulation continues to decline. Factors that have
contributed to the decline in the investment periodicals and related
publications revenues include competition in the form of free or low cost
investment research on the Internet and research provided by brokerage firms at
no direct cost to their clients. As of April 30, 2010, total company-wide
circulation has dropped 11% compared to the previous fiscal
year. Overall renewal rates for the flagship product, The Value Line Investment
Survey, are 74%, up from 70% a year earlier, however, the Company is not
adding enough new subscribers to offset the subscribers that choose not to renew
to the flagship product and the other products. The Company has been
successful in growing electronic investment periodicals revenues within
institutional sales, which increased $671,000 or 10% from the previous year.
Fiscal year gross institutional sales through April 30, 2010 were $9,361,000, up
$1,174,000 or 14% from the previous fiscal year. This continues to be
a positive trend, but not sufficient to offset the lost revenue from retail
subscribers.
Within
investment periodicals and related publications are subscription revenues
derived from print and electronic products. The following chart
illustrates the year-to-year change in the revenues associated with print and
electronic subscriptions.
Subscription
Revenues
|
||||||||||||||||||||
Year Ended April 30, |
Percentage Change
|
|||||||||||||||||||
(in thousands) |
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
|||||||||||||||
Print
publication revenues
|
$ | 23,309 | $ | 27,089 | $ | 30,660 | -14.0 | % | -11.6 | % | ||||||||||
Electronic
publication revenues
|
$ | 12,656 | $ | 12,846 | $ | 12,131 | -1.5 | % | 5.9 | % | ||||||||||
Total
investment periodicals and related publications revenue
|
$ | 35,965 | $ | 39,935 | $ | 42,791 | -9.9 | % | -6.7 | % | ||||||||||
Unearned
revenues (short and long term)
|
$ | 27,177 | $ | 28,997 | $ | 32,530 | -6.3 | % | -10.9 | % |
For the
twelve months ended April 30, 2010, print publication revenues decreased
$3,780,000 or 14% from the last fiscal year for the reasons described
earlier. Print circulation, which has always dominated our
subscription base, has fallen 12% from the last fiscal
year. Electronic publications revenues were down $190,000 for the
twelve months ended April 30, 2010. All the retail electronic
services continued to decline in circulation from the prior fiscal
year.
The
electronic publication revenues are broken down into institutional accounts and
retail subscribers. For the twelve months ended April 30, 2010,
institutional revenues increased $671,000 or 10%, while revenues from retail
subscribers were down $861,000 or 15% as compared to the twelve months ended
April 30, 2009. The Company has relied more on its institutional
sales marketing efforts, and the increase in institutional revenues is a direct
result of a focused effort for sales to colleges, libraries and corporate
accounts. The decrease in electronic retail publications revenues is
primarily attributable to the decrease in circulation within the Company’s
software products, which continue to decline.
19
The Value
Line Timeliness Ranking SystemTM (“the
Ranking System”), a component in the Company’s flagship product, The Value Line Investment
Survey, is also an important part of the Company’s copyright data
business. As stated in recent quarterly filings, the rapid and severe
price actions in the markets in 2009 appear to have favored short-term
investing, as investors bought well known names whose earnings have plunged but
whose stock prices were depressed in hopes the stock prices would
rebound. Such stocks are generally not well ranked by Value Line
because the Ranking System emphasizes earnings results and price
momentum. The Ranking System is designed to be predictive over a six
to twelve month period. During the six months and fiscal quarter
ended April 30, 2010, the combined Value Line Timeliness Rank 1 & 2 stock
performance of 24.1% and 16.3%, allowing for weekly changes in Ranks, compares
favorably to the 14.5% and 10.5% return of the S&P 500 index,
respectively. The Company and its quantitative research staff
continue to work diligently to improve the Ranking System’s predictive
performance although no assurances are possible.
Copyright
data fees
Copyright
data fees have decreased $1,090,000 or 25% for the twelve months ended April 30,
2010 as compared to the twelve months ended April 30, 2009. As of
April 30, 2010, total third party sponsored assets were attributable to four
contracts for copyright data and represent $2.6 billion in various products as
compared to four contracts and $2.0 billion in assets last fiscal year,
representing a 28% increase in assets year end over year end. Despite
the increase in year end assets under management from April 30, 2009 to April
30, 2010, average assets under management during the year ended April 30, 2009
were greater than for the year ended April 30, 2010. The combination
of the underperformance by the Ranking System and the broad and deep declines in
the equity markets from late 2008 and early 2009 significantly impacted assets
of the third party sponsors that are customers of our copyright data business
which resulted in lower asset based fees paid to the Company. The
Company believes the growth of this part of the business is dependent upon the
desire of third parties to use the Value Line trademarks and proprietary
research for their products. Today this market is significantly more competitive
as a result of product diversification and growth of the use of indices by
portfolio managers. Copyright data fees have been a critical
component of the Company’s plan to replace shrinking publishing revenues but no
new contracts have been added in fiscal year 2010.
Investment
management fees and distribution services revenues
Overall
fund assets are flat compared to the end of the last fiscal year. The
following table illustrates the total fund assets as of April 30, 2010 as
compared to April 30, 2009. Since the end of the fiscal year through
June 14, 2010, the equity markets have pulled back and the S&P 500 has
declined 7.9% and the Russell 2000 has declined 7.5%. Total net
assets in the Value Line Funds have fallen from $2.3 billion at fiscal 2010 year
end to $2.1 billion as a result of the market decline, with equity funds’ assets
falling $163 million between April 30, 2010 and June 14, 2010.
Total Net Assets
|
||||||||||||||||||||
At April 30,
|
|
|
Percentage Change
|
|||||||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
|||||||||||||||
Equity
funds
|
$ | 1,941,109 | $ | 1,899,128 | $ | 3,307,879 | 2.2 | % | -42.6 | % | ||||||||||
Fixed
income funds
|
$ | 249,869 | $ | 248,928 | $ | 266,172 | 0.4 | % | -6.5 | % | ||||||||||
U.S.
Government Money Market Fund
|
$ | 132,103 | $ | 181,573 | $ | 219,499 | -27.2 | % | -17.3 | % | ||||||||||
Total
net assets
|
$ | 2,323,081 | $ | 2,329,629 | $ | 3,793,550 | -0.3 | % | -38.6 | % |
As a
result of a 20% decline in average assets under management for the twelve months
of fiscal year 2010 as compared to the previous year, investment management fees
and distribution services revenues for the twelve months ended April 30, 2010
were down $6,041,000 or 24% below the prior fiscal year. Management
fees for the twelve months ended April 30, 2010 were down $4,149,000 or 22% as
compared to the prior fiscal year. There was a net decrease of $1,250,000 or 23%
in distribution services revenues (12b-1 fees). During the period,
contractual fee waivers have applied for most of the Value Line Funds. For the
twelve months ended April 30, 2010 and 2009, 12b-1 fee waivers were $2,648,000
and $2,889,000, respectively. For the twelve months ended April 30,
2010 and 2009, management fee waivers were $838,000 and $208,000,
respectively. Twelve of the fourteen funds have all or a portion of
the 12b-1 fees being waived and five of the fourteen funds have partial
management fee waivers in place. With very limited exception, the
Company and its subsidiaries have no right to recoup the previously waived
management fees and 12b-1 fees.
20
Of the
fourteen funds managed by the Company, shares of Value Line Strategic Asset
Management Trust (“SAM”) and Value Line Centurion Fund are available to the
public only through the purchase of certain variable annuity and variable life
insurance contracts issued by The Guardian Insurance & Annuity Company, Inc.
(“GIAC”). The table below shows the assets in the equity funds broken down into
the two categories of equity funds.
Equity Fund Net Assets (Variable Annuity and Open End Equity Funds)
|
||||||||||||||||||||
At April 30,
|
|
|
|
Percentage Change
|
||||||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
|||||||||||||||
Equity
fund assets sold through GIAC
|
$ | 495,004 | $ | 453,959 | $ | 808,055 | 9.0 | % | -43.8 | % | ||||||||||
All
other equity fund assets
|
$ | 1,446,105 | $ | 1,445,169 | $ | 2,499,824 | 0.1 | % | -42.2 | % | ||||||||||
Total
Equity fund net assets
|
$ | 1,941,109 | $ | 1,899,128 | $ | 3,307,879 | 2.2 | % | -42.6 | % |
As of
April 30, 2010, one of the six equity mutual funds, excluding SAM and Centurion,
had a four star rating by Morningstar, Inc. as compared to two of the six equity
funds, having had four stars a year ago. The equity funds experienced
net redemptions for the twelve months ended April 30, 2010, as compared to net
sales the previous year. As of April 30, 2010, shareholder accounts declined 17%
from the previous year to 150,704 from 181,487. The largest distribution channel
for the Value Line Funds remains the fund supermarket platforms such as Charles
Schwab & Co., Inc., TD Ameritrade and Fidelity.
The Value
Line fixed income mutual fund assets (excluding the Value Line U.S. Government
Money Market Fund, formerly the Value Line Cash Fund), represent 11% of total
mutual fund assets at April 30, 2010, same as the previous
year. Value Line U.S. Government Money Market Fund assets represent
6% of the total fund assets at April 30, 2010 and have decreased 27% from the
previous year, primarily as a result of cash held in the Fund by the Company and
AB&Co. being redeployed into other fixed income investments such as
pre-refunded municipal bonds, U.S. Treasury securities, and FDIC backed floating
rate notes. In addition, the Company reduced its cash held in the
U.S. Government Money Market Fund by approximately $44 million as a result of
the SEC Settlement payment in November 2009, and the special dividend payment to
shareholders of the Company in April 2010. Currently, management fees
from the U.S. Government Money Market fund are negligible with the Company
waiving nearly all its fees since the end of November 2009 in order to maintain
a return to shareholders.
Shareholder
transactions for the Value Line Mutual Funds are processed each business day by
the third party transfer agent of the Funds. Shares can be redeemed without
advance notice upon request of the shareholders each day that the New York Stock
Exchange is open.
Separately
managed accounts revenues decreased $643,000 or 74% for the twelve months ended
April 30, 2010 as compared to the twelve months ended April 30, 2009 primarily
due to the loss of a major account at the end of the last fiscal
year. The Company’s separately managed accounts as of April 30, 2010
have $48 million in assets, no change since April 30, 2009. Of the
$48 million, $24 million is affiliated with AB&Co. Assets within the
separately managed accounts are held at third party custodians, are subject to
the terms of each advisory agreement and do not have any advance notice
requirement for withdrawals, although they generally have a 30 day advance
notice requirement for termination of the account. The Company did
not add any new accounts during the fiscal year 2010 and lost one small account
in November 2009.
Expenses
Expenses
within the Company are categorized into advertising and promotion, salaries and
employee benefits, production and distribution, and office and administration.
For fiscal 2010, expenses include a provision for the SEC Settlement of
$48,106,000. Operating expenses of $90,330,000 for the twelve months
ended April 30, 2010 were $45,312,000 above operating expenses of $45,018,000
last fiscal year. For the twelve months ended April 30, 2010, operating
expenses, excluding the provision for the SEC Settlement, were $42,224,000, 6%
below operating expenses last fiscal year. Operating expenses of
$11,335,000 for the fourth quarter ended April 30, 2010 were $2,362,000 or 26%
above operating expenses of $8,973,000 for the fourth quarter of the prior
fiscal year.
21
Advertising
and promotion
Year Ended April 30,
|
|
|
|
Percentage Change
|
||||||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
|||||||||||||||
Advertising
and promotion
|
$ | 9,346 | $ | 10,874 | $ | 13,863 | -14.1 | % | -21.6 | % |
Advertising
and promotion expenses for the twelve months ended April 30, 2010 decreased
$1,528,000 as compared to the twelve months ended April 30, 2009. Within the
investment management segment, supermarket and Guardian (GIAC) platform expenses
associated with the distribution of the mutual funds decreased $947,000 or 16%
below the prior year due to the decline in the average net assets under
management. Print advertising was limited due to the market
volatility and uncertainty related to the SEC investigation and as a result fell
$692,000 during fiscal year 2010. Within the publishing segment,
costs associated with direct mail were relatively flat year to
year.
Salaries
and employee benefits
Year Ended April 30,
|
|
|
|
Percentage Change
|
||||||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
|||||||||||||||
Salaries
and employee benefits
|
$ | 16,314 | $ | 17,676 | $ | 18,594 | -7.7 | % | -4.9 | % |
Salaries
and employee benefits decreased by $1,362,000 from the previous
year. Over the past several years, the Company has saved money by
combining the roles and responsibilities of various personnel and by selective
outsourcing. During fiscal year 2010, there was consolidation at the
executive level further reducing salaries and employee
benefits. Additional savings resulted from the Company’s decision not
to contribute to the Value Line Profit Sharing Plan for fiscal years 2010 and
2009.
Production
and distribution
Year Ended April 30,
|
|
|
|
Percentage Change
|
||||||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
|||||||||||||||
Production
and distribution
|
$ | 5,244 | $ | 5,868 | $ | 6,251 | -10.6 | % | -6.1 | % |
Production
and distribution expenses for the twelve months ended April 30, 2010 were
$624,000 below expenses for the twelve months ended April 30,
2009. Amortized software costs decreased $325,000 below last fiscal
year due to a reduction in prior year expenditures for capitalized
costs. In addition, the decline in expenses was due to volume
reductions in paper, printing and mailing that resulted primarily from a
decrease in circulation of the print products.
Office
and administration
Year Ended April 30,
|
|
|
|
Percentage Change
|
||||||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
|||||||||||||||
Office
and administration
|
$ | 11,320 | $ | 10,600 | $ | 9,520 | 6.8 | % | 11.3 | % |
Office
and administration expenses for the twelve months ended April 30, 2010 were
$720,000 above expenses for the twelve months ended April 30,
2009. Professional fees were flat for the year as compared to the
previous year. Professional fees fluctuate year to year based on the
level of operations, litigation or regulatory activity requiring the use of
outside professionals. However, during the twelve months ended April
30, 2010, the Company expensed $727,000 of capitalized development costs related
to a software production project that was determined to be no longer
viable.
Provision
for Settlement
On
November 4, 2009, the Company, its former CEO and another former officer of the
Company concluded a Settlement with the SEC as a result of an investigation
regarding the execution of portfolio transactions on behalf of the Value Line
Funds managed by the Company. As a result of the Settlement, the
Company established a reserve of $48,106,000 of which it paid $43,706,000 into a
Fair Fund to reimburse shareholders who owned shares in the affected Mutual
Funds in the period covered by the Settlement. During the fourth
quarter the Company accrued $400,000 of additional costs relating to the
Settlement, in particular relating to the Fair Fund distribution
process. The Settlement included certain terms and
conditions including a bar and disassociation of the Company’s former CEO and
indirect majority shareholder. The former CEO and indirect majority
shareholder has not yet complied with the portion of the settlement order, which
requires her to disassociate from EULAV and ESI. The Company and the indirect
majority shareholder are exploring various alternatives to comply with the
disassociation deadline.
22
Segment
Operating Profit
The
Company operates in two business segments, Investment Periodicals, Publishing
& Copyright Data and Investment Management.
Investment Periodicals, Publishing & Copyright Data
|
Investment Management
|
|||||||||||||||||||||||||||||||||||||||
Twelve Months Ended April 30,
|
Twelve Months Ended April 30,
|
|||||||||||||||||||||||||||||||||||||||
|
|
|
Percentage Change
|
|
|
|
Percentage Change
|
|||||||||||||||||||||||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
2010
|
2009
|
2008
|
10 vs 09
|
09 vs 08
|
||||||||||||||||||||||||||||||
Segment
revenues from external customers
|
$ | 39,208 | $ | 44,268 | $ | 49,857 | -11.4 | % | -11.2 | % | $ | 18,932 | $ | 24,973 | $ | 32,821 | -24.2 | % | -23.9 | % | ||||||||||||||||||||
Segment
profit/(loss) from operations
|
$ | 10,425 | $ | 16,237 | $ | 18,464 | -35.8 | % | -12.1 | % | $ | (42,614 | ) | $ | 7,998 | $ | 16,002 |
NMF
|
-50.0 | % | ||||||||||||||||||||
Segment
profit/(loss) margin from operations
|
26.6 | % | 36.7 | % | 37.0 | % | -27.5 | % | -1.0 | % | -225.1 | % | 32.0 | % | 48.8 | % |
NMF
|
-34.3 | % |
Investment
Periodicals, Publishing & Copyright Data
Segment
revenues, operating profit and operating profit margins from the Company’s
Investment Periodicals, Publishing & Copyright Data segment declined
significantly from the previous fiscal year primarily due to the continued
deterioration in circulation of the total product line. As previously mentioned
the ranking system’s sometimes inconsistent performance and competition in the
form of free or low cost investment research on the Internet and research
provided by brokerage firms at no cost to their clients contributed to the
decline in revenue. The recession and turmoil in the markets have also
contributed to the decline in subscriptions as individuals reduced many forms of
discretionary spending, or have shifted investments to fixed income, for which
the Company only provides research on mutual funds and ETF vehicles.
Investment Periodicals, Publishing & Copyright Data segment profit margin
from operations decreased as a direct result of the decline in
revenue.
Investment
Management
Revenues
from the Company’s Investment Management business segment declined significantly
from the previous fiscal year primarily due to the decline in investment
management fees from the Company’s family of mutual funds that was a direct
result of the deterioration in the underlying assets under management and fee
waivers. The Company waived management fees of $564,000 in the U.S. Government
Money Market Fund due to the low interest rate environment which causing the
Fund to operate below its normalized expense ratio. Segment operating
profit and operating profit margin are negative for the fiscal year ended April
30, 2010 due to the provision for the SEC Settlement.
Income
from Securities Transactions, net
During
the twelve months ended April 30, 2010, the Company’s income from securities
transactions, net, of $837,000 was $10,788,000 or 93% below income from
securities transactions, net, of $11,625,000 during the twelve months ended
April 30, 2009. Income from securities transactions, net, includes
dividend and interest income of $859,000 at April 30, 2010 that was $608,000 or
41% below income of $1,467,000 for the twelve months ended April 30, 2009,
primarily due to lower yield on the Value Line U.S. Government Money Market
Fund. In addition, the Company did not own any equity investments in
fiscal year 2010. Capital gains, net of capital losses, during the
twelve months ended April 30, 2010 were $42,000. Capital gains, net of capital
losses, during the twelve months ended April 30, 2009 were $9,788,000, which
included a realized capital gain of $9,539,000 from the sale of the Company’s
entire equity securities portfolio.
23
Effective
income tax rate
The
overall effective income tax rate, as a percentage of pre-tax ordinary income
for the twelve months ended April 30, 2010 and April 30, 2009 was 26.04% and
35.97%, respectively. The fluctuation in the income tax rate is attributable to
the non-deductible portion of the provision for the SEC Settlement described in
Note 14 – Legal Proceedings within the Notes to the Consolidated Condensed
Financial Statements as of April 30, 2010 and the change in the non-taxable
investment income, events that do not have tax consequences.
Liquidity
and Capital Resources
The
Company had working capital of $21,262,000 as of April 30, 2010 and $80,439,000
as of April 30, 2009. Working capital as of April 30, 2010 has been
reduced by a provision of $48,106,000 relating to the SEC Settlement of which
$43.7 million was paid in November 2009 and the payment of $3 per share special
dividend during the fourth quarter of fiscal 2010 in lieu of the regular $.20
per share quarterly dividend or $29.9 million in the aggregate. Cash
and short-term securities were $39,964,000 as of April 30, 2010 and $106,665,000
as of April 30, 2009.
The
Company’s cash and cash equivalents include $15,943,000 at April 30, 2010 which
is invested in the Value Line U.S. Government Money Market Fund. The
U.S. Government Money Market Fund operates under Rule 2a-7 of the Investment
Company Act of 1940. There have been no delays in redemption payments
from this fund. The fund’s portfolio includes U.S. government agency
securities, U.S. Treasuries, certificate of deposits, commercial paper, and
repurchase agreements collateralized with U.S. Treasuries in which the custodian
physically takes possession of the collateral.
Cash
from operating activities
The
Company had cash outflows from operations of $8,658,000 for the twelve months
ended April 30, 2010 as compared to cash inflows from operations of $14,372,000
for the twelve months ended April 30, 2009. This was a result of the
payment pursuant to the SEC Settlement of $43.7 million to the Fair Fund in
November 2009, which was partially offset by the proceeds from sale of fixed
income securities within the Company’s trading portfolio to fund the SEC
Settlement. Otherwise, the Company had positive cash flows from its
operating activities for fiscal year 2010.
Cash
from investing activities
The
Company’s cash inflow from investing activities of $21,085,000 for the twelve
months ended April 30, 2010 was 39% lower than cash inflow from investing
activities of $34,581,000 for the twelve months ended April 30,
2009. Cash inflows in fiscal 2009 were higher as a result of sales of
the Company’s entire equity portfolio during fiscal year ended April 30, 2009
and partial sale of fixed income securities during fiscal 2010 to fund the SEC
Settlement.
Cash
from financing activities
The
Company’s net cash outflow from financing activities of $38,928,000 as of April
30, 2010 was 160% higher than cash outflow from financing activities of
$14,972,000 for the twelve months ended April 30, 2009. The
increase in cash outflow during fiscal 2010 resulted from the payment
of five dividends during fiscal 2010 including a special $3 per share dividend
paid in April 2010, in the aggregate amount of $3.90 per share compared with
four dividends totaling $1.50 per share for the fiscal year ended April 30,
2009.
Management
believes that the Company’s cash and other liquid asset resources used in its
business together with the future cash flows from operations will be sufficient
to finance current and forecasted liquidity. Management does not
anticipate any borrowing in fiscal 2011. Retained
earnings were nearly $20 million and liquid assets $40 million at year end April
30, 2010.
24
Critical
Accounting Estimates and Policies
The
Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. The Company bases its estimates on
historical experience and on various other assumptions that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent and the Company evaluates its estimates on an ongoing
basis. Actual results may differ from these estimates under different
assumptions or conditions. The Company believes the following critical
accounting policies reflect the significant judgments and estimates used in the
preparation of its Consolidated Financial Statements:
|
·
|
Revenue
recognition
|
|
·
|
Income
taxes
|
|
·
|
Reserve
for settlement expenses
|
Revenue
Recognition
The
majority of the Company’s revenues come from the sale of print and electronic
subscriptions, investment management and service and distribution fees, and fees
for copyright proprietary information. The Company recognizes
subscription revenue in equal amounts over the term of the subscription, which
generally ranges from three months to one year or longer, varying based on the
product or service. Investment management fees and service and
distribution fee revenues for the Value Line Funds are recognized each month
based upon the daily net asset value of each fund. Copyright data
fees are calculated monthly based on market fluctuation and billed
quarterly. The Company believes that the estimates related to revenue
recognition are critical accounting estimates, and to the extent that there are
material differences between its determination of revenues and actual results,
its financial condition or results of operations may be affected.
Income
Taxes
The
Company’s effective annual income tax expense rate is based on the U.S. federal
and state and local jurisdiction tax rates on income and losses that are part of
its Consolidated Financial Statements. Tax-planning opportunities and the blend
of business income and income from securities transactions will impact the
effective tax rate in the various jurisdictions in which the Company operates.
Significant judgment is required in evaluating the Company’s tax
positions.
Tax law
requires items to be included in the tax return at different times from when
these items are reflected in the Company’s Consolidated Financial Statements. As
a result, the effective tax rate reflected in its Consolidated Financial
Statements is different from the tax rate reported on the Company’s tax return
(the Company’s cash tax rate). Some of these differences are
permanent, such as non-taxable income that is not includable in the Company’s
tax return and expenses that are not deductible in the Company’s tax return, and
some differences reverse over time, such as depreciation and amortization
expenses. These timing differences create deferred tax assets and liabilities.
Deferred tax assets and liabilities are determined based on temporary
differences between the financial reporting and the tax basis of assets and
liabilities.
As of
April 30, 2010, the Company had $8,690,000 of deferred tax assets, which
included $7,847,000 of short-term deferred Federal, State, and local taxes
related to the current year NOL carryforward of $19.3 million. In
assessing the Company’s deferred tax assets, the Company considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible.
25
In
assessing the need for a valuation allowance, the Company considers both
positive and negative evidence, including tax-planning strategies, projected
future taxable income, and recent financial performance. If after future
assessments of the realizability of the deferred tax assets the Company
determines a lesser allowance is required, the Company would record a reduction
to the income tax expense and to the valuation allowance in the period this
determination was made. This would cause the Company’s income tax expense,
effective tax rate, and net income to fluctuate.
In
addition, the Company establishes reserves at the time that it determines that
it is more likely than not that it will need to pay additional taxes related to
certain matters. The Company adjusts these reserves, including any impact of the
related interest and penalties, in light of changing facts and circumstances
such as the progress of a tax audit. A number of years may elapse before a
particular matter for which the Company has established a reserve is audited and
finally resolved. The number of years with open tax audits varies depending on
the tax jurisdiction. Such liabilities are recorded as income taxes
payable in the Company’s Consolidated Balance Sheets. Settlement of any
particular issue would usually require the use of cash. Favorable resolutions of
tax matters for which the Company has previously established reserves are
recognized as a reduction to the Company’s income tax expense when the amounts
involved become known.
Assessing
the future tax consequences of events that have been recognized in the Company’s
financial statements or tax returns requires judgment. Variations in the actual
outcome of these future tax consequences could materially impact the Company’s
financial position, results of operations, or cash flows.
Reserve
for settlement expenses
The
Company has $4,247,000 in accrued liabilities to reserve for expenses related to
the SEC Settlement. This expense is an estimate related to the Fair
Fund creation and administration required by the SEC to distribute the proceeds
of the Fair Fund. Included in the estimate are calculations for the
third party administrator, tax advisor, legal, and transfer agent work to
identify shareholders, and to calculate and distribute the proceeds of the Fair
Fund. These costs are estimates based on the scope of the work and
bids received from the third party vendors. Due to the complexity of
the Fair Fund distribution, these estimates are subject to change with a
positive or negative impact to the Company predicated on the complexity of the
calculation and determination of shareholders who will receive distributions
from the Fair Fund.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
Contractual
Obligations
Below is
a summary of certain contractual obligations (in thousands):
Contractual
Obligations
|
Total
|
Less Than
1 Year
|
1-3 years
|
3-5 years
|
More Than
5 Years
|
|||||||||||||||
Operating
Lease Obligations
|
$ | 9,090 | $ | 2,948 | $ | 5,896 | $ | 246 | - | |||||||||||
Purchase
Obligations
|
- | - | - | - | - | |||||||||||||||
Other
Long-term Obligations reflected on Balance Sheet
|
$ | 27,177 | $ | 22,314 | $ | 4,863 | - | - | ||||||||||||
TOTAL
|
$ | 36,267 | $ | 25,262 | $ | 10,759 | $ | 246 | - |
26
Item
7A. 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
price risk, although the Company disposed of its entire portfolio of equity
securities during the fiscal year ended April 30, 2009 and held no equity
securities during the fiscal year ended April 30, 2010. The following
sections address the significant market risks associated with the Company’s
business activities.
Interest
Rate Risk
The
Company’s strategy has been to acquire debt securities with low credit
risk. Despite this strategy management recognizes and accepts the
possibility that losses may occur. To limit the price fluctuation in
these securities from interest rate changes, the Company’s management invests
primarily in short-term obligations maturing in six months to three
years.
The fair
values of the Company’s fixed maturity investments will fluctuate in response to
changes in market interest rates. Increases and decreases in
prevailing interest rates generally translate into decreases and increases in
fair values of those instruments. Additionally, fair values of
interest rate sensitive instruments may be affected by prepayment options,
relative values of alternative investments, and other general market
conditions.
The
following table summarizes the estimated effects of hypothetical increases and
decreases in interest rates on assets that are subject to interest rate
risk. It is assumed that the changes occur immediately and uniformly
to each category of instrument containing interest rate risks. The
hypothetical changes in market interest rates do not reflect what could be
deemed best or worst case scenarios. Variations in market interest
rates could produce significant changes in the timing of repayments due to
prepayment options available. For these reasons, actual results might
differ from those reflected in the table. Dollars are in
thousands.
Estimated
Fair Value after
|
||||||||||||||||||||
Hypothetical Change in Interest
Rates
|
||||||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
(bp
= basis points)
|
||||||||||||||||||||
6 mo.
|
6 mo.
|
1 yr.
|
1 yr.
|
|||||||||||||||||
Fair
|
50bp
|
50bp
|
100bp
|
100bp
|
||||||||||||||||
Fixed Income Securities
|
Value
|
increase
|
decrease
|
increase
|
decrease
|
|||||||||||||||
As
of April 30, 2010
|
||||||||||||||||||||
Investments
in securities with fixed maturities
|
$ | 23,532 | $ | 23,468 | $ | 23,470 | $ | 23,463 | $ | 23,463 | ||||||||||
As
of April 30, 2009
|
||||||||||||||||||||
Investments
in securities with fixed maturities
|
$ | 63,729 | $ | 62,573 | $ | 62,966 | $ | 61,796 | $ | 62,222 |
Management
regularly monitors the maturity structure of the Company’s investments in debt
securities in order to maintain an acceptable price risk associated with changes
in interest rates.
Equity
Price Risk
The
carrying values of investments subject to equity price risks are based on quoted
market prices or management’s estimates of fair value as of the balance sheet
dates. Market prices are subject to fluctuation and, consequently,
the amount realized in the subsequent sale of an investment may significantly
differ from the reported market value. Fluctuation in the market
price of a security may result from perceived changes in the underlying economic
characteristics
27
of the
issuer, the relative price of alternative investments and general market
conditions. Furthermore, amounts realized in the sale of a particular
security may be affected by the relative quantity of the security being
sold.
In fiscal
year 2010 and at the end of fiscal year 2009, Value Line did not hold equity
securities.
Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The
following consolidated financial statements of the registrant and its
subsidiaries are included as a part of this Form 10K:
Page Number
|
|
Report
of independent auditors
|
38
|
Consolidated
balance sheets—April 30, 2010 and 2009
|
39
|
Consolidated
statements of income
|
|
-years
ended April 30, 2010, 2009 and 2008
|
40
|
Consolidated
statements of cash flows
|
|
-years
ended April 30, 2010, 2009 and 2008
|
41
|
Consolidated
statement of changes in shareholders’ equity
|
|
-years
ended April 30, 2010, 2009 and 2008
|
42
|
Notes
to the consolidated financial statements
|
43
|
Quarterly
Results (Unaudited)
(in
thousands, except per share amounts)
Income/(Loss)
|
Earnings/(Loss)
|
|||||||||||||||
Total
|
From
|
Net
|
Per
|
|||||||||||||
Revenues
|
Operations
|
Income/(Loss)
|
Share
|
|||||||||||||
2010,
by Quarter
|
||||||||||||||||
First
|
$ | 14,788 | $ | (42,786 | ) | $ | (31,580 | ) | $ | (3.16 | ) | |||||
Second
|
14,866 | 3,435 | 2,381 | 0.23 | ||||||||||||
Third
|
14,573 | 4,583 | 3,566 | 0.36 | ||||||||||||
Fourth
|
13,913 | 2,578 | 2,445 | 0.25 | ||||||||||||
Total
|
$ | 58,140 | $ | (32,190 | ) | $ | (23,188 | ) | $ | (2.32 | ) | |||||
2009,
by Quarter
|
||||||||||||||||
First
|
$ | 20,213 | $ | 7,465 | $ | 5,062 | $ | 0.51 | ||||||||
Second
|
18,327 | 6,266 | 10,542 | 1.05 | ||||||||||||
Third
|
15,856 | 4,620 | 3,732 | 0.38 | ||||||||||||
Fourth
|
14,845 | 5,872 | 3,617 | 0.36 | ||||||||||||
Total
|
$ | 69,241 | $ | 24,223 | $ | 22,953 | $ | 2.30 | ||||||||
2008,
by Quarter
|
||||||||||||||||
First
|
$ | 20,801 | $ | 8,965 | $ | 5,943 | $ | 0.60 | ||||||||
Second
|
21,110 | 9,416 | 6,359 | 0.63 | ||||||||||||
Third
|
21,080 | 9,337 | 8,471 | 0.85 | ||||||||||||
Fourth
|
19,687 | 6,732 | 4,777 | 0.48 | ||||||||||||
Total
|
$ | 82,678 | $ | 34,450 | $ | 25,550 | $ | 2.56 |
28
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
|
There
have been no disagreements with the independent accountants on accounting and
financial disclosure matters.
Item
9A. CONTROLS AND PROCEDURES.
(a)
Evaluation
of Disclosure Controls and Procedures.
The
Company's Acting Chief Executive Officer, Chief Financial Officer, and Treasurer
carried out an evaluation of the effectiveness of the Company's "disclosure
controls and procedures" (as defined in the Securities Exchange Act of 1934
Rules 13a-15(e) or 15d-15(e)) as of April 30, 2010, as required by paragraph (b)
of Exchange Act Rules 13a-15 or 15d-15. The Company’s Acting Chief
Executive Officer, Chief Financial Officer, and Treasurer are engaged in a
comprehensive effort to review, evaluate and improve the Company's controls;
however, management does not expect that the Company's disclosure controls or
its internal controls over financial reporting will prevent all possible errors
and fraud.
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s reports filed with
the SEC is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including its Acting Chief
Executive Officer, Chief Financial Officer, and Treasurer, as appropriate, to
allow timely decisions regarding required disclosure.
The
Company’s management has evaluated, with the participation of the Company’s
Acting Chief Executive Officer and Chief Financial Officer, the effectiveness of
the Company’s disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Acting Chief Executive
Officer and the 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.
This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.
Changes
in Internal Controls
In the
course of the evaluation of disclosure controls and procedures, the Acting Chief
Executive Officer and Chief Financial Officer considered certain internal
control areas in which the Company has made and is continuing to make changes to
improve and enhance controls. Based upon that evaluation, the Acting
Chief Executive Officer and Chief Financial Officer of the Company concluded
that there were no changes in the Company's internal controls over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter
that have materially affected, or are reasonably likely to materially affect,
the Company's internal controls over financial reporting.
29
(b)
Management’s Annual Report on Internal Control over Financial
Reporting.
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f)
under the Exchange Act. Internal control over financial reporting is a process
designed by, or under the supervision of, the Company’s principal executive and
principal financial officers, and effected by the board of directors,
management, and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with US GAAP including those policies and
procedures that: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with US GAAP and that receipts and
expenditures are being made only in accordance with authorizations of management
and directors of the Company, and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with policies and procedures may deteriorate.
Under the
supervision and with the participation of management, including the Acting Chief
Executive Officer, Chief Financial Officer, and the Treasurer, the Company has
assessed the effectiveness of its internal control over financial reporting as
of April 30, 2010. In making this assessment, management used the criteria
described in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this assessment and those criteria, management concluded that the Company did
maintain effective internal control over financial reporting as of April 30,
2010.
Changes
in Internal Control over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
during the most recently completed fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
Item
9B. OTHER INFORMATION.
There
were no matters required to be disclosed by the Company in a report on Form 8-K
during the Company's fourth fiscal quarter of the year ended April 30, 2010 that
were not reported.
30
Part
III
Item
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE.
(a) Names of Directors,
Age as of June 30, 2010 and Principal Occupation
|
Director Since
|
|
Howard
A. Brecher* (56). Acting Chairman and Acting CEO since November
2009; Chief Legal Officer; Vice President; Secretary until January 2010;
Vice President and Secretary of the Value Line Funds since June
2008; Secretary of EULAV since February 2009; Director, Vice
President, Secretary, Treasurer and General Counsel of Arnold
Bernhard & Co., Inc.
|
1992
|
|
Stephen
Davis (58). Managing Member, Davis Investigative Group,
LLC
|
2010
|
|
Alfred
Fiore (54). Chief of Police, Westport, CT
|
2010
|
|
William
Reed (65). President, W.E. Reed
|
2010
|
|
Mitchell
E. Appel (39). Chief Financial Officer since April 2008 and
from September 2005 to November 2007; President of each of the Value Line
Funds since June 2008; President of EULAV and ESI since
February 2009; Treasurer from June to September 2005; Chief
Financial Officer, XTF Asset Management from November 2007 to April
2008.
|
2010
|
|
Stephen
R. Anastasio (51). Treasurer since September 2005; Treasurer
of each of the Value Line Funds from September 2005 to August
2008; Chief Financial Officer from 2003 to September
2005.
|
2010
|
|
Thomas
T. Sarkany (64). Mutual Fund Marketing Director; Director of
Copyright Data; Secretary since January 2010.
|
2010
|
* Member
of the Executive Committee.
Except as
noted, the directors have held their respective positions for at least five
years.
Information
about the experience, qualifications, attributes and skills of the directors is
incorporated by reference from the section entitled "Director Qualifications" in
the Company's Proxy Statement for the 2010 Annual Meeting of
Shareholders.
(b)
|
The
information pertaining to Executive Officers is set forth in Part I under
the caption "Executive Officers of the
Registrant."
|
Audit
Committee
The
Company has a standing Audit Committee performing the functions described in
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, the members of which
are: Mr. Stephen Davis, Mr. Alfred Fiore, and Mr. William
Reed.
Audit Committee Financial
Expert
The Board
of Directors has determined that no member of the Audit Committee is an “audit
committee financial expert” (as defined in the rules and regulations of the
Securities and Exchange Commission). The Board of Directors believes
that the experience and financial sophistication of the members of the Audit
Committee are sufficient to permit the members of the Audit Committee to fulfill
the duties and responsibilities of the Audit Committee. All members
of the Audit Committee meet the Nasdaq Stock Market’s audit committee financial
sophistication requirements.
31
Code of
Ethics
The
Company has adopted a Code of Business Conduct and Code of Ethics that applies
to its principal executive officer, principal financial officer, all other
officers, and all other employees. The Code of Business Conduct and
Code of Ethics as amended was effective June 11, 2009, and are available on the
Company’s Internet site.
Procedures for Shareholders
to Nominate Directors
There
have been no material changes to the procedures by which shareholders of the
Company may recommend nominees to the Company's Board of Directors implemented
after the disclosure of those procedures contained in the proxy statement for
the Company's 2009 Annual Meeting of Shareholders.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act requires the Company's executive officers and
directors, and persons who own more than ten percent of a registered class of
the Company’s equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission.
Executive officers, directors and greater than ten percent shareowners are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Forms 3, 4 and 5 they file.
Based on
the Company's review of the copies of such forms that it has received and
written representations from certain reporting persons confirming that they were
not required to file Forms 5 for specified fiscal years, the Company believes
that all its executive officers, directors and greater than ten percent
beneficial owners complied with applicable SEC filing requirements during fiscal
2010.
Indemnification
Agreements
On July
13, 2010, the Company entered into separate Indemnification Agreements (the
"Indemnification Agreements") with its seven directors, Howard A. Brecher,
Stephen Davis, Alfred Fiore, William E. Reed, Mitchell E. Appel, Stephen R.
Anastasio and Thomas T. Sarkany (the "Indemnitees"), which address the
indemnification rights of the Indemnitees in the event an Indemnitee is or
becomes a party to or witness in litigation by reason of Indemnitee's position
as a current or former member of the Board of Directors or officer of the
Company ("Claims"). The Indemnification Agreements supplement the
indemnification rights provided for under New York law and the Company's
certificate of incorporation and bylaws. The Indemnification
Agreements, among other things, provide that the Company's Chief Executive
Officer ("CEO") or Acting CEO will determine strategy for all Claims including
whether the Company will litigate or settle any litigation. The CEO
or Acting CEO may select one or more counsel if he determines it is in the
common interest; otherwise the Company's directors and/or officers may select
counsel acceptable to the CEO or Acting CEO. The Company shall
advance reasonable fees and costs for selected or accepted
counsel. The Company shall, provided that such directors and/or
officers relied in the underlying matter upon the advice of relevant
professionals where such advice was sought (in the case of legal counsel after
Claims arise, the CEO or acting CEO's selected or accepted counsel, in the case
of accountants, the Company's auditors, or other accounting advice at the
request of the CEO or acting CEO), indemnify such directors and/or officers to
the fullest extent permitted by applicable law except as set forth in the
Indemnification Agreements. If any director and/or officer wishes to
challenge the CEO's or Acting CEO's decision regarding strategy or selection of
counsel, or payment of fees, he may do so at his own expense. If a
director and/or officer named in a lawsuit on behalf of the Company (e.g. a
shareholder derivative suit) decides to have separate legal counsel rather than
utilizing the CEO's or Acting CEO's selected or accepted counsel, that
director's and/or officer's own personal expense shall not be subject to
reimbursement by the Company. If the Company advances fees and costs
for counsel to any director and/or officer and that director and/or officer is
found by a court of competent jurisdiction after all appeals not to have acted
in good faith, then the director and/or officer must reimburse the Company for
any funds that have been advanced pursuant to the Indemnification
Agreement.
32
Item
11. EXECUTIVE COMPENSATION.
The
information required in response to this Item is incorporated by reference from
the section entitled “Compensation of Directors and Executive Officers” in the
Company’s Proxy Statement for the 2010 Annual Meeting of
Shareholders.
Item
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED
STOCKHOLDER MATTERS.
The
following table sets forth information as of June 30, 2010 as to shares of the
Company's Common Stock held by persons known to the Company to be the beneficial
owners of more than 5% of the Company's Common Stock.
Name
and Address
|
Number
of Shares
|
Percentage
of Shares
|
|||
of Beneficial Owner
|
Beneficially Owned
|
Beneficially Owned1
|
|||
Arnold
Bernhard & Co., Inc.1
|
8,633,733
|
86.5
|
% | ||
220
East 42nd Street
|
|||||
New
York, NY 10017
|
1Jean
Bernhard Buttner, former Chairman and CEO of the Company, owns all of the
outstanding voting stock of Arnold Bernhard & Co.,
Inc. Substantially all of the non-voting stock of Arnold Bernhard
& Co., Inc. is held by members of the Buttner family.
The
following table sets forth information as of June 30, 2010, with respect to
shares of the Company's Common Stock owned by each director of the Company, by
each executive officer listed in the Summary Compensation Table and by all
executive officers and directors as a group.
Name
and Address
|
Number
of Shares
|
Percentage
of Shares
|
||||||
of Beneficial Owner
|
Beneficially Owned
|
Beneficially Owned
|
||||||
Mitchell
E. Appel
|
200 | * | ||||||
Howard
A. Brecher
|
200 | * | ||||||
Stephen
R. Anastasio
|
100 | * | ||||||
Thomas
Sarkany
|
0 | * | ||||||
William
Reed
|
0 | * | ||||||
Alfred
Fiore
|
0 | * | ||||||
Stephen
Davis
|
0 | * | ||||||
All
directors and executive officers as a group (7 persons)
|
500 | * |
*Less
than one percent
Securities Authorized for
Issuance under Equity Compensation Plans
As of the
date of this Annual Report on Form 10-K, there were no securities of the Company
authorized for issuance under equity compensation plans.
33
Item
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
AB&Co.,
which owns 86.5% of the outstanding shares of the Company’s common stock,
utilizes the services of officers and employees of the Company to the extent
necessary to conduct its business. The Company and AB&Co.
allocate costs for office space, equipment and supplies and shared staff
pursuant to a servicing and reimbursement agreement. During the years
ended April 30, 2010, 2009, and 2008, the Company was reimbursed $2,105,000,
$926,000, and $1,327,000, respectively, for payments it made on
behalf of and services it provided to AB&Co. At April 30, 2010,
the Receivables from affiliates included a receivable from AB&Co. of
$5,000. At April 30, 2009, accounts payable to affiliates included a
payable to AB&Co. of $164,000. In addition, a tax-sharing
arrangement allocates the tax liabilities of the two companies between
them. The Company is included in the consolidated federal income tax
return filed by AB&Co.The Company pays to AB&Co. an amount equal to the
Company's liability as if it filed a separate tax return. For the
years ended April 30, 2010, 2009, and 2008, the Company made payments to
AB&Co. for federal income tax amounting to $1,875,000, $10,958,000, and
$12,460,000, respectively. At April
30, 2010, prepaid and refundable income taxes in the Consolidated Balance Sheet
included $1,598,000 of prepaid federal income tax due from
AB&Co. At April 30, 2009, accrued taxes payable in the
Consolidated Balance Sheet included $360,000 of federal income tax payable to
AB&Co.
The
Company acts as investment adviser and manager for fourteen open-end investment
companies, the Value Line Funds. The Company earns investment
management fees based upon the average daily net asset values of the respective
funds. The Company also manages a fixed income portfolio for AB&Co. for
which it received an asset based fee of $53,000 during fiscal year 2010. ESI
receives service and distribution fees under rule 12b-1 of the Investment
Company Act of 1940 from certain Value Line Funds for which EULAV is the
adviser. For the years ended April 30, 2010, 2009, and 2008,
investment management fees, and service and distribution fees amounted to
$18,710,000, $24,109,000, and $31,644,000, respectively, after fee
waivers. These amounts include service and distribution fees of
$4,123,000, $5,373,000, and $7,113,000, respectively. The related
receivables from the funds for management advisory fees and service and
distribution fees included in Receivable from affiliates were $1,516,000 and
$1,475,000 at April 30, 2010 and 2009, respectively.
On March
11, 2010, VLI and the Boards of Trustees/Directors of the Value Line Funds
entered into an agreement pursuant to which VLI will reimburse the Funds in the
aggregate amount of $917,302 for various past expenses incurred by the Funds in
connection with the SEC matter referred to in Note 14. The payable for this
expense reimbursement is included in the reserve for settlement expenses on the
consolidated balance sheet of the Company. The expenses will be paid by VLI in
twelve monthly installments commencing April 1, 2010.
For any
transaction required to be disclosed in Item 404(a) of Regulation S-K, the
Company’s policy and procedure is to have such transactions reviewed by the full
Board of Directors for approval. The Company's written Code of Business Conduct
and Ethics prohibits activities that present conflicts of interest between the
personal interest of an officer, director or employee and the interests of the
Company. The Company's policy and procedure with respect to approval of related
party transactions is not in writing but, in the Company's view, is a logical
extension of the Code of Business Conduct and Ethics since it provides a
mechanism for assuring that transactions with related parties do not compromise
the interests of the Company. Transactions covered for the fiscal
year ended April 30, 2010 include shared taxes that are paid by the Company to
AB&Co. and shared services such as overhead and personnel costs that are
charged to AB&Co. The amounts are disclosed in Note 3 (Related
Party Transactions) and Note 6 (Taxes) to the financial statements.
Director
Independence
The
information required with respect to director independence and related matters
is incorporated by reference from the section entitled “Compensation of
Directors and Executive Officers” in the Company’s Proxy Statement for the 2010
Annual Meeting of Shareholders.
Information
with respect to separate Indemnification Agreements with the Company's seven
directors is incorporated herein by reference from Item 10, Directors, Executive
Officers and Corporate Governance.
34
Item
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit and Non-Audit Fees
The
following table illustrates for the fiscal years ended April 30, fees paid to
the Company’s independent auditor, Horowitz & Ullmann for services
provided:
2010
|
2009
|
|||||||
Audit
fees
|
$ | 157,800 | $ | 155,500 | ||||
Audit-related
fees
|
$ | 15,970 | $ | 13,310 | ||||
Tax
fees
|
$ | 166,640 | $ | 68,640 | ||||
All
other fees
|
$ | 4,020 | $ | 4,005 |
Audit
Committee Pre-Approval Policies and Procedures
The Audit
Committee of the Company's Board of Directors approves all services provided by
Horowitz & Ullmann, prior to the provision of those services and has not
adopted any specific pre-approval policies and procedures.
Part
IV
Item
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
|
1. Financial
Statements- See Part II Item 8.
|
All other
Schedules are omitted because they are not applicable or the required
information is shown in the financial statements
or notes thereto.
(b)
|
Exhibits
|
3.1
|
Articles
of Incorporation of the Company, as amended through April 17, 1983, are
incorporated by reference to the Registration Statement - Form S-1 of
Value Line, Inc. Part II, Item 16.(a) 3.1 filed with the Securities and
Exchange Commission on April 7, 1983.
|
|
3.2
|
Certificate of
Amendment of Certificate of Incorporation dated October 24, 1989 is
incorporated by
reference to the Amended Annual Report on Form 10K-A for the year ended
April 30, 2008 filed 6/5/2009.
|
|
10.8
|
Form
of tax allocation arrangement between the Company and AB&Co.
incorporated by reference to the Registration Statement - Form S-1 of
Value Line, Inc. Part II, Item 16.(a) 10.8 filed with the Securities and
Exchange Commission on April 7, 1983.
|
|
10.9
|
Form of Servicing
and Reimbursement Agreement between the Company and AB&Co., dated as
of November
1, 1982 incorporated by reference to the Registration Statement - Form S-1
of Value Line, Inc. Part II, Item 16.(a) 10.9 filed with the Securities
and Exchange Commission on April 7, 1983.
|
|
10.10
|
Value
Line, Inc. Profit Sharing and Savings Plan as amended and restated
effective May 1, 2008.
|
|
10.13
|
Lease
for the Company's premises at 220 East 42nd Street, New York, NY
incorporated by reference to the Annual Report on Form 10-K for the year
ended April 30, 1994 filed 6/17/1994, SEC file #
000-11306.
|
|
10.14
|
Lease
amendment dated September 14, 2000 was filed on amended Form 10-K dated
8/17/2001; lease amendment dated January 19, 2006 was filed on Form 10-K
dated 7/28/2006, and lease amendment dated April 23, 2007 was filed on
Form 10-K dated 7/20/2007.
|
|
10.15 |
Form
of separate Indemnification Agreements dated July 13, 2010 between the
Company and Howard A. Brecher, Stephen Davis, Alfred Fiore, William E.
Reed, Mitchell E. Appel, Stephen R. Anastasio and Thomas T.
Sarkany.
|
|
14
|
Code
of Business Conduct and Code of Ethics as amended.
|
|
21
|
Subsidiaries
of the Registrant.
|
|
31
|
Rules
13a-14(a) and 15d-14(a) Certifications.
|
|
32
|
Section
1350
Certifications.
|
35
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report on Form 10-K for the fiscal
year ended April 30, 2010, to be signed on its behalf by the undersigned,
thereunto duly authorized.
VALUE
LINE, INC.
|
|
(Registrant)
|
|
By:
|
s/ Howard Brecher
|
Howard
Brecher
|
|
Acting
Chairman & Acting Chief Executive Officer
|
|
(Principal
Executive Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
By:
|
s/ Howard Brecher
|
Howard
Brecher
|
|
Acting
Chairman & Acting Chief Executive Officer
|
|
(Principal
Executive Officer)
|
|
By:
|
s/ Mitchell E. Appel
|
Mitchell
E. Appel
|
|
Chief
Financial Officer
|
|
(Principal
Financial Officer)
|
Dated: July
16, 2010
36
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the undersigned on behalf of the Registrant as Directors of the
Registrant.
s/ Howard A. Brecher
|
s/ Mitchell E. Appel
|
|
Howard
A. Brecher
|
Mitchell
E. Appel
|
|
s/ Stephen Anastasio
|
s/ Thomas T. Sarkany
|
|
Stephen
Anastasio
|
Thomas
T. Sarkany
|
|
s/ William Reed
|
s/ Alfred Fiore
|
|
William
Reed
|
Alfred
Fiore
|
|
s/ Stephen Davis
|
||
Stephen
Davis
|
Dated: July
16, 2010
37
HOROWITZ
& ULLMANN, P.C.
Certified Public
Accountants
275
Madison Avenue
|
||
A
member of the
|
New
York, NY 10016
|
|
AICPA
Center for Audit Quality
|
Telephone:
(212) 532-3736
|
|
New
York State Society of CPAs
|
Facsimile: (212)
545-8997
|
|
PCAOB
registered
|
E-mail:
cpas@horowitz-ullmann.com
|
Report
of Independent Accountants
To
the Board of Directors
and
Shareholders of
Value
Line, Inc.
We have
audited the accompanying consolidated balance sheets of Value Line, Inc. and
Subsidiaries as of April 30, 2010 and 2009 and the related consolidated
statements of income, changes in shareholders’ equity, and cash flows for each
of the years in the three-year period ended April 30, 2010. Value
Line’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Value Line, Inc. and Subsidiaries
at April 30, 2010 and 2009, and the results of its operations and its cash flows
for each of the years in the three-year period ended April 30, 2010, in
conformity with accounting principles generally accepted in the United States of
America.
New
York, NY
July
9, 2010
38
Item
8.
Value
Line, Inc.
Consolidated
Balance Sheets
(in
thousands, except share amounts)
April 30,
2010
|
April 30,
2009
|
|||||||
Assets
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents (including short term investments
of $15,946 and $42,068,
respectively)
|
$ | 16,435 | $ | 42,936 | ||||
Trading
securities
|
- | 17,203 | ||||||
Securities
available for sale
|
23,529 | 46,526 | ||||||
Accounts
receivable, net of allowance for doubtful accounts
of $47 and $47,
respectively
|
1,681 | 2,353 | ||||||
Receivable
from affiliates
|
1,520 | 1,312 | ||||||
Prepaid
and refundable income taxes
|
2,086 | - | ||||||
Prepaid
expenses and other current assets
|
995 | 1,047 | ||||||
Deferred
income taxes
|
8,690 | 493 | ||||||
Total
current assets
|
54,936 | 111,870 | ||||||
Long
term assets:
|
||||||||
Property
and equipment, net
|
4,257 | 4,474 | ||||||
Capitalized
software and other intangible assets, net
|
792 | 1,211 | ||||||
Total long term assets
|
5,049 | 5,685 | ||||||
Total
assets
|
$ | 59,985 | $ | 117,555 | ||||
Liabilities
and Shareholders' Equity
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 4,982 | $ | 2,865 | ||||
Accrued
salaries
|
1,351 | 1,438 | ||||||
Dividends
payable
|
- | 2,994 | ||||||
Accrued
taxes payable
|
780 | 392 | ||||||
Reserve
for settlement expenses
|
4,247 | - | ||||||
Unearned
revenue
|
22,314 | 23,742 | ||||||
Total
current liabilities
|
33,674 | 31,431 | ||||||
Long
term liabilities:
|
||||||||
Unearned
revenue
|
4,863 | 5,255 | ||||||
Total
long term liabilities
|
4,863 | 5,255 | ||||||
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
|
19,813 | 78,935 | ||||||
Treasury
stock, at cost (18,400 shares on 4/30/10 and
4/30/09)
|
(354 | ) | (354 | ) | ||||
Accumulated
other comprehensive income, net of tax
|
(2 | ) | 297 | |||||
Total
shareholders' equity
|
21,448 | 80,869 | ||||||
Total
liabilities and shareholders' equity
|
$ | 59,985 | $ | 117,555 |
See
independent auditor's report and accompanying notes to the consolidated
financial statements.
39
Item
8.
Value
Line, Inc.
Consolidated
Statements of Income
(in
thousands, except per share amounts)
Years
ended April 30,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Revenues:
|
||||||||||||
Investment
periodicals and related publications
|
$ | 35,965 | $ | 39,935 | $ | 42,791 | ||||||
Copyright
data fees
|
3,243 | 4,333 | 7,066 | |||||||||
Investment
management fees & services
|
18,932 | 24,973 | 32,821 | |||||||||
Total
revenues
|
58,140 | 69,241 | 82,678 | |||||||||
Expenses:
|
||||||||||||
Advertising
and promotion
|
9,346 | 10,874 | 13,863 | |||||||||
Salaries
and employee benefits
|
16,314 | 17,676 | 18,594 | |||||||||
Production
and distribution
|
5,244 | 5,868 | 6,251 | |||||||||
Office
and administration
|
11,320 | 10,600 | 9,520 | |||||||||
Provision
for settlement
|
48,106 | - | - | |||||||||
Total
expenses
|
90,330 | 45,018 | 48,228 | |||||||||
Income/(loss)
from operations
|
(32,190 | ) | 24,223 | 34,450 | ||||||||
Income
from securities transactions, net
|
837 | 11,625 | 6,294 | |||||||||
Income/(loss)
before income taxes/(benefit)
|
(31,353 | ) | 35,848 | 40,744 | ||||||||
Provision
for income taxes/(benefit)
|
(8,165 | ) | 12,895 | 15,194 | ||||||||
Net
income/(loss)
|
$ | (23,188 | ) | $ | 22,953 | $ | 25,550 | |||||
Earnings/(loss)
per share, basic & fully diluted
|
$ | (2.32 | ) | $ | 2.30 | $ | 2.56 | |||||
Weighted
average number of common shares
|
9,981,600 | 9,981,600 | 9,981,600 |
See
independent auditor's report and accompanying notes to the consolidated
financial statements.
40
Part
II
Item
8.
Value
Line, Inc.
Consolidated
Statements of Cash Flows
(in
thousands)
Years
ended April 30,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income/(loss)
|
$ | (23,188 | ) | $ | 22,953 | $ | 25,550 | |||||
Adjustments
to reconcile net income/(loss) to net cash provided by/(used in) operating
activities:
|
||||||||||||
Depreciation
and amortization
|
726 | 1,140 | 1,619 | |||||||||
Amortization
of bond premiums
|
1,042 | 1,655 | - | |||||||||
Realized
gains on sales of securities
|
(419 | ) | (9,470 | ) | (2,792 | ) | ||||||
Unrealized
(gains)/losses on securities
|
377 | (318 | ) | (82 | ) | |||||||
Deferred
income taxes
|
(8,165 | ) | 109 | (151 | ) | |||||||
Writedown
of software
|
727 | - | - | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
Proceeds
from sales of trading securities
|
16,840 | 9,027 | - | |||||||||
Purchases
of trading securities
|
- | (6,583 | ) | (3,926 | ) | |||||||
(Decrease)
in unearned revenue
|
(1,820 | ) | (3,533 | ) | (1,970 | ) | ||||||
Increase
in deferred charges
|
- | 110 | 160 | |||||||||
Increase
in reserve for settlement
|
4,247 | - | - | |||||||||
(Decrease)/increase
in accts. payable & accrued expenses
|
2,117 | (2,380 | ) | (722 | ) | |||||||
(Decrease)
in accrued salaries
|
(87 | ) | (33 | ) | (74 | ) | ||||||
Increase
in accrued taxes payable
|
388 | 263 | 129 | |||||||||
(Increase)/decrease
in prepaid expenses and current assets
|
179 | (81 | ) | 560 | ||||||||
(Increase)/decrease
in prepaid and refundable income taxes
|
(2,086 | ) | - | 510 | ||||||||
Decrease
in accounts receivable
|
672 | 380 | 1,196 | |||||||||
(Increase)/decrease
in receivable from affiliates
|
(208 | ) | 1,133 | 349 | ||||||||
Total
adjustments
|
14,530 | (8,581 | ) | (5,194 | ) | |||||||
Net
cash (used in)/provided by operating activities
|
(8,658 | ) | 14,372 | 20,356 | ||||||||
Cash
flows from investing activities:
|
||||||||||||
Proceeds
from sales of equity securities
|
- | 37,760 | 2,793 | |||||||||
Purchase
of equity securities
|
- | (9 | ) | (4,231 | ) | |||||||
Proceeds
from sales of fixed income securities
|
69,941 | 45,526 | 9,622 | |||||||||
Purchases
of fixed income securities
|
(48,039 | ) | (47,510 | ) | (27,602 | ) | ||||||
Acquisition
of property and equipment
|
(81 | ) | (203 | ) | (265 | ) | ||||||
Expenditures
for capitalized software
|
(736 | ) | (983 | ) | (344 | ) | ||||||
Net
cash provided by/(used in) investing activities
|
21,085 | 34,581 | (20,027 | ) | ||||||||
Cash
flows from financing activities:
|
||||||||||||
Dividends
paid
|
(38,928 | ) | (14,972 | ) | (11,979 | ) | ||||||
Net
cash used in financing activities
|
(38,928 | ) | (14,972 | ) | (11,979 | ) | ||||||
Net
increase/(decrease) in cash and cash equivalents
|
(26,501 | ) | 33,981 | (11,650 | ) | |||||||
Cash
and cash equivalents at beginning of year
|
42,936 | 8,955 | 20,605 | |||||||||
Cash
and cash equivalents at end of year
|
$ | 16,435 | $ | 42,936 | $ | 8,955 |
See
independent auditor's report and accompanying notes to the consolidated
financial statements.
41
Part
II
Item
8.
VALUE
LINE, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR
THREE YEARS ENDED APRIL 30, 2010, 2009 & 2008
(in
thousands, except share amounts)
Common stock
|
Accumulated
|
|||||||||||||||||||||||||||||||
Number
|
Par
|
Additional
|
Other
|
|||||||||||||||||||||||||||||
of
|
Value
|
paid-in
|
Treasury
|
Comprehensive
|
Retained
|
Comprehensive
|
||||||||||||||||||||||||||
shares
|
Amount
|
capital
|
Stock
|
income/(loss)
|
earnings
|
income/(loss)
|
Total
|
|||||||||||||||||||||||||
Balance
at April 30, 2007
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 57,383 | $ | 16,552 | $ | 75,572 | ||||||||||||||||||
Comprehensive
income
|
||||||||||||||||||||||||||||||||
Net
income
|
$ | 25,550 | 25,550 | 25,550 | ||||||||||||||||||||||||||||
Other
comprehensive income/ (loss), net of tax:
|
||||||||||||||||||||||||||||||||
Change
in unrealized gains on securities, net of taxes
|
(1,289 | ) | (1,289 | ) | (1,289 | ) | ||||||||||||||||||||||||||
Comprehensive
income
|
$ | 24,261 | ||||||||||||||||||||||||||||||
Dividends
declared
|
(11,979 | ) | (11,979 | ) | ||||||||||||||||||||||||||||
Balance
at April 30, 2008
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 70,954 | $ | 15,263 | $ | 87,854 | ||||||||||||||||||
Comprehensive
income
|
||||||||||||||||||||||||||||||||
Net
income
|
$ | 22,953 | 22,953 | 22,953 | ||||||||||||||||||||||||||||
Other
comprehensive income/ (loss), net of tax:
|
||||||||||||||||||||||||||||||||
Change
in unrealized gains on securities, net of taxes
|
(14,966 | ) | (14,966 | ) | (14,966 | ) | ||||||||||||||||||||||||||
Comprehensive
income
|
$ | 7,987 | ||||||||||||||||||||||||||||||
Dividends
declared
|
(14,972 | ) | (14,972 | ) | ||||||||||||||||||||||||||||
Balance
at April 30, 2009
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 78,935 | $ | 297 | $ | 80,869 | ||||||||||||||||||
Comprehensive
income/(loss)
|
||||||||||||||||||||||||||||||||
Net
(loss)
|
$ | (23,188 | ) | (23,188 | ) | (23,188 | ) | |||||||||||||||||||||||||
Other
comprehensive income/ (loss), net of tax:
|
||||||||||||||||||||||||||||||||
Change
in unrealized gains on securities, net of taxes
|
(299 | ) | (299 | ) | (299 | ) | ||||||||||||||||||||||||||
Comprehensive
income/(loss)
|
$ | (23,487 | ) | |||||||||||||||||||||||||||||
Dividends
declared
|
(35,934 | ) | (35,934 | ) | ||||||||||||||||||||||||||||
Balance
at April 30, 2010
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 19,813 | $ | (2 | ) | $ | 21,448 |
See
independent auditor's report and accompanying notes to the consolidated
financial statements.
42
Notes
to Consolidated Financial Statements
Note
1-Organization and Summary of Significant Accounting Policies:
Value
Line, Inc. (the "Company", "VLI") is incorporated in the State of New
York. The Company's primary businesses are producing investment
related periodical publications and making available copyright data including
certain Value Line trademarks and Value Line proprietary ranking system
information to third parties under written agreements for use in third party
managed and marketed investment products, providing investment management
services to the Value Line Funds, institutions and individual accounts and
providing distribution, marketing, and administrative services to the Value Line
Funds. The name "Value Line" as used to describe the Company, its
products, and its subsidiaries, is a registered trademark of the
Company.
Principles
of consolidation: The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Accounting
Standards Codification:
During
fiscal year 2010, the Company adopted the Financial Accounting Standards Board's
(FASB's) Accounting
Standards Codification (ASC). The FASB's ASC is the source of
authoritative U.S. accounting and reporting standards for nongovernmental
entities, in addition to guidance issued by the SEC. The FASB's ASC
reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting
topics and displays all topics using a consistent structure. Although not the
official source, it also includes relevant portions of authoritative SEC
guidance that follows the same topical structure in separate sections in the
Codification. The financial statements of the Company have been
updated to reflect the relevant references to the FASB's ASC.
Revenue
Recognition:
Depending
upon the product, subscription fulfillment is available in print, via internet
access and CD-ROM. The length of a subscription varies by
product and offer received by the subscriber. Generally,
subscriptions are available as trial subscriptions, annual subscriptions and/or
multi-year subscriptions. Subscription revenues are recognized on a
straight line basis over the life of the subscription. Accordingly,
the amount of subscription fees to be earned by fulfilling subscriptions after
the date of the balance sheet is shown as unearned revenue within current and
long-term liabilities. Changes in unearned revenue generally indicate the trend
for subscription revenues over the following year as the current portion of
deferred revenue is expected to be recognized as revenue within 12
months.
Copyright
data revenues are derived from providing certain Value Line trademarks and Value
Line proprietary ranking system information to third parties under written
agreements for use in selecting securities for third party marketed products,
including unit investment trusts, annuities and exchange traded
funds. Value Line earns asset based copyright data fees as specified
in the individual agreements. Revenue is recognized monthly over the
term of the agreement and will fluctuate as the market value of the underlying
portfolio increases or decreases in value.
Investment
management fees consist of management fees from the Value Line Mutual Funds
("Value Line Funds"), and from asset management clients. Investment
management fees for the mutual funds are earned on a monthly basis as services
are performed and the fee is calculated based on average daily net assets of the
mutual funds in accordance with each fund's advisory
agreement. Investment management fees for the asset management
accounts are earned on a monthly basis as services are performed and the fee is
calculated on assets in accordance with each of the agreements (see Note
3).
The
management fees and average daily net assets for the Value Line Funds are
calculated by State Street Bank, which serves as the fund accountant, fund
administrator, and custodian of the Value Line Funds. The management fees for
the non-mutual fund asset management clients are calculated by the Company based
on the asset valuations provided by third party custodians.
The Value
Line Funds are open-end management companies registered under the Investment
Company Act of 1940. Shareholder transactions for the Value
Line Funds are processed each business day by the third party transfer agent of
the Funds. Shares can be redeemed without advance notice upon request
of the shareowners each day that the New York Stock Exchange is
open. Assets within the separately managed accounts are held at third
party custodians, are subject to the terms of each advisory agreement and do not
have any advance notice requirement for withdrawals, although they generally
have a 30 day advance notice requirement for termination of the
account.
Service
and distribution fees are received from the Value Line Funds in accordance with
service and distribution plans under rule 12b-1 of the Investment Company Act of
1940. The plans are compensation plans, which means that the
distributor’s fees under the plans are payable without regard to actual expenses
incurred by the distributor, and therefore the distributor may earn a profit
under the plan. Expenses incurred by EULAV Securities, Inc. ("ESI")
(formerly, Value Line Securities, Inc. ("VLS")), the distributor of the Value
Line Funds, include payments to securities dealers, banks, financial
institutions and other organizations (including an allocation of VLI expenses),
that provide distribution, marketing, and administrative services with respect
to the distribution of the Value Line Funds. Service and distribution
fees are received on a monthly basis and calculated on the average daily net
assets of the respective mutual fund in accordance with each prospectus (see
Note 3).
43
Value
Line, Inc.
Notes
to Consolidated Financial Statements
Valuation
of Securities:
The
Company's securities classified as available for sale consist of shares of the
Value Line Funds and government debt securities accounted for in accordance with
the requirements of the "Fair Value Measurements Topic of the FASB's
ASC. The securities available for sale and trading securities
reflected in the consolidated financial statements are valued at
market and unrealized gains and losses on securities classified as
available for sale, net of applicable taxes, are reported as a separate
component of Shareholders' Equity. Unrealized gains and losses on trading
securities are included in the Statement of Income. Realized gains and losses on
sales of the securities classified as available for sale are recorded in
earnings on trade date and are determined on the identified cost
method.
The
Company classifies its securities available for sale as current assets. It does
so to properly reflect its liquidity and to recognize the fact that it has
assets available for sale to fully satisfy its current liabilities should the
need arise.
Market
valuation of securities listed on a securities exchange is based on the closing
sales prices on the last business day of each month. Valuation of open-end
mutual fund shares is based upon the publicly quoted net asset value of the
shares. The market value of the Company's fixed maturity government debt
obligations are determined utilizing publicly quoted market prices or other
observable inputs.
The
Company adopted the Fair Value Measurements Topic of FASB's ASC that defines
fair value as the price that the Company would receive upon selling an
investment in a timely transaction to an independent buyer in the principal or
most advantageous market for the investment. The Fair Value
Measurements Topic established a three-tier hierarchy to maximize the use of
observable market data and minimize the use of unobservable inputs and to
establish classification of fair value measurements for disclosure purposes.
Inputs refer broadly to the information that market participants would use in
pricing the asset or liability, including assumptions about risk. Examples of
risks include those inherent in a particular valuation technique used to measure
fair value such as the risk inherent in the inputs to the valuation technique.
Inputs are classified as observable or unobservable. Observable inputs are
inputs that reflect the assumptions market participants would use in pricing the
asset or liability developed based on market data obtained from sources
independent of the reporting entity. Unobservable inputs are inputs that reflect
the reporting entity’s own assumptions about the factors market participants
would use in pricing the asset or liability developed based on the best
information available in the circumstances. The three-tier hierarchy of inputs
is summarized in the three broad levels listed below.
Level 1 –
quoted prices in active markets for identical investments
Level 2 –
other significant observable inputs (including quoted prices for similar
investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 –
significant unobservable inputs (including the Company’s own assumptions in
determining the fair value of investments)
The
valuation techniques used by the Company to measure fair value during the fiscal
year 2010 for Level 1 securities consisted exclusively of quoted
prices.
The
securities valued as Level 2 investments consist of municipal bonds (that are
pre-refunded by U.S. Treasury securities) and other U.S. Treasury securities.
Valuation techniques used by the Company to measure fair value for government
securities during the period consisted primarily of third party pricing services
that utilized actual market data such as trades of comparable bond issues,
broker/dealer quotations for the same or similar investments in active markets
and other observable inputs. When necessary, the third party services
use discounted future cash flows to calculate the net present
value.
The
following is a summary of the inputs used as of April 30, 2010 in valuing the
Company’s investments carried at fair value:
(in thousands)
|
||||||||||||||||
Valuation
Inputs
|
Total
Investments
|
Cash
Equivalents
|
Investments in
Trading
Securities
|
Investments in
Securities
Available for
Sale
|
||||||||||||
Level
1 - quoted prices
|
$ | 15,943 | $ | 15,943 | - | - | ||||||||||
Level
2 - other significant observable inputs
|
23,529 | - | - | 23,529 | ||||||||||||
Level
3 - significant unobservable inputs
|
- | - | - | - | ||||||||||||
Total
|
$ | 39,472 | $ | 15,943 | $ | - | $ | 23,529 |
The
Company had no other financial instruments including futures, forwards and swap
contracts. For the period ended April 30, 2010, there were no Level 3
investments. The Company does not have any liabilities subject to Fair Value
Measurement.
Advertising
expenses: The Company expenses advertising costs as
incurred.
44
Value
Line, Inc.
Notes
to Consolidated Financial Statements
Reclassification: Certain
items in the prior year financial statements have been reclassified to conform
to the current year presentation.
Income
Taxes:
The
Company computes its income tax provision in accordance with the Income Tax
Topic of the FASB's ASC. Deferred tax liabilities and assets are
recognized for the expected future tax consequences of events that have been
reflected in the Consolidated Financial Statements. Deferred tax liabilities and
assets are determined based on the differences between the book values and the
tax bases of particular assets and liabilities, using tax rates currently in
effect for the years in which the differences are expected to
reverse.
The
Income Tax Topic of the FASB's ASC establishes for all entities, a minimum
threshold for financial statement recognition of the benefit of positions taken
in filing tax returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. As of
April 30, 2010, management has reviewed the tax positions for the years still
subject to tax audit under the statute of limitations, evaluated the
implications, and determined that there is no impact to the Company's financial
statements.
Earnings
per share: Earnings per share are based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
each year.
Cash and
Cash Equivalents: For purposes of the Consolidated Statements of Cash
Flows, the Company considers all cash held at banks and short term liquid
investments with an original maturity of less than three months to be cash and
cash equivalents. As of April 30, 2010 and 2009, cash equivalents included
$15,943,000 and $42,068,000, respectively, invested in the Value Line U.S.
Government Money Market Fund. The Value Line Cash Fund was renamed
the U.S. Government Money Market Fund in August 2009.
Use of
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Note
2-Supplementary Cash Flow Information:
Cash
payments for income taxes were $2,406,000, $12,464,000, and $15,036,000 in
fiscal 2010, 2009, and 2008, respectively. Interest payments of $21,000,
$18,000, and $0 were made during fiscal 2010, 2009, and 2008,
respectively.
Note
3-Related Party Transactions:
The
Company's subsidiary, EULAV Asset Management, LLC ("EULAV") is the investment
adviser and manager for fourteen open-end investment companies, the Value Line
Funds. EULAV earns investment management fees based upon the average
daily net asset values of the respective Value Line Funds. As
discussed in Note 1, service and distribution fees are received by ESI from the
Value Line Funds in accordance with service and distribution plans under rule
12b-1 of the Investment Company Act of 1940. The plans are
compensation plans, which means that the distributor’s fees under the plans are
payable without regard to actual expenses incurred by the distributor, and
therefore the distributor may earn a profit under the plans. Expenses
incurred by ESI include payments to securities dealers, banks, financial
institutions and other organizations which provide distribution, marketing, and
administrative services (including payments by ESI to VLI for allocated
compensation and administration expenses) with respect to the distribution of
the funds’ shares. Service and distribution fees are received on a
monthly basis and calculated on the daily net assets of the respective fund in
accordance with each fund's prospectus.
On
March 11, 2010, VLI and the Boards of Trustees/Directors of the Value Line Funds
entered into an agreement pursuant to which VLI will reimburse the Funds in the
aggregate amount of $917,302 for various past expenses incurred by the Funds in
connection with the SEC matter referred to in Note 14. The payable for this
expense reimbursement is included in the reserve for settlement expenses on the
consolidated balance sheet of the Company. The expenses will be paid by VLI in
twelve monthly installments commencing April 1, 2010.
For the
twelve months ended April 30, 2010, 2009, and 2008, investment management fees
and 12b-1 service and distribution fees amounted to $18,710,000, $24,109,000,
and $31,644,000, respectively, which took into account fee waivers for certain
of the Value Line Funds. These amounts included service and distribution fees of
$4,123,000, $5,373,000, and $7,113,000, earned by ESI in fiscal years 2010,
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 $1,516,000 and $1,475,000 at April 30, 2010 and
April 30, 2009, respectively.
45
Value
Line, Inc.
Notes
to Consolidated Financial Statements
For the
twelve months ended April 30, 2010, 2009, and 2008, total management fee waivers
were $838,000, $208,000, and $226,000, respectively, and service and
distribution fee waivers were $2,648,000, $2,889,000, and
$3,774,000, respectively. The Company and its subsidiary, ESI, have
no right to recoup the previously waived amounts of management fees and 12b-1
fees, except for waived management fees for the U.S. Government Money Market
Fund. Any recoupment is subject to the provisions of the
prospectus.
As of
April 30, 2010, the Company had $15,943,000 invested in the Value Line U.S.
Government Money Market Fund representing 12% of total fund assets. Purchases
and redemptions routinely occur in the Value Line U.S. Government Money Market
Fund as part of the business operations of the Company.
For the
years ended April 30, 2010, 2009 and 2008, the Company was reimbursed
$2,105,000, $926,000, and $1,327,000, respectively, for payments it made on
behalf of and services it provided to the Parent. At April 30, 2010, the
Receivables from affiliates included a receivable from the Parent of
$5,000. At April 30, 2009, Receivables from affiliates were reduced
by the Payables to the Parent in the amount of $164,000.
For the
years ended April 30, 2010, 2009, and 2008, the Company made payments
to the Parent for federal income tax amounting to $1,875,000, $10,958,000, and
$12,460,000, respectively. At April 30, 2010, prepaid and refundable income
taxes in the Consolidated Balance Sheet included $1,598,000 of prepaid federal
income tax due from Arnold Bernhard & Co., Inc. (the
"Parent"). At April 30, 2009, accrued taxes payable in the
Consolidated Balance Sheet included $360,000 of federal income tax payable to
the Parent. These transactions are in accordance with the tax sharing
arrangement described in Note 6.
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.
Note
4-Investments:
Securities
held by the Company are classified as Trading Securities and Available-for-Sale
Securities. All securities held in ESI, as a broker/dealer, are classified as
trading securities. Securities held by the Company and its other
subsidiaries are classified as available-for-sale securities.
Trading
Securities:
The
Company sold its portfolio of government debt securities during the fourth
quarter ended April 30, 2010 and did not hold any securities as of April 30,
2010. During fiscal year 2010, securities owned consisted of
government debt securities and were recorded on trade date and reflected at fair
value. The proceeds from sales of trading securities during the
fiscal year ended April 30, 2010 were $16,840,000 and the related net realized
trading gains amounted to $242,000. Trading securities held by the
Company at April 30, 2009 had an aggregate cost of $17,133,000 and a market
value of $17,203,000. The proceeds from sales of trading securities
during the fiscal year ended April 30, 2009 were $9,027,000 and the related net
realized trading gains amounted to $105,000. The net changes in unrealized gains
or losses for the periods ended April 30, 2010, 2009 and 2008 of
$71,000 loss, $255,000 gain, and $82,000 gain, respectively, were included in
the Consolidated Statement of Income.
Securities
Available for Sale
Equity
Securities:
The
Company sold its portfolio of equity securities in fiscal 2009 and did not hold
any equity securities as of April 30, 2010 or 2009.
The
proceeds from sales of equity securities classified as available for sale during
the twelve months ended April 30, 2009 were $37,760,000 and the related capital
gains, net of capital losses, were $9,539,000, which were reclassified to net
income from Accumulated Other Comprehensive Income. The decreases in gross
unrealized gains on equity securities classified as available for sale due to
changes in market conditions of $14,356,000, net of deferred taxes of
$5,054,000, were included in Shareholders' Equity at April 30,
2009.
The total
gains for equity securities with net gains included in Accumulated Other
Comprehensive Income on the Consolidated 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 Balance Sheet were $251,000,
net of deferred tax benefit of $89,000, as of April 30, 2008.
The
proceeds from sales of securities including capital gain distributions
reinvested in the Value Line Funds during the fiscal years ended April 30, 2010,
2009, and 2008 were $0, and $37,760,000, and $2,793,000,
respectively. Realized capital gains from the sales
of securities classified as available for sale were $2,793,000, which
were reclassified out of Accumulated Other Comprehensive Income into earnings
during the fiscal year ended April 30, 2008.
46
Value
Line, Inc.
Notes
to Consolidated Financial Statements
Government
Debt Securities (Fixed Income Securities):
Government
debt securities consist of federal, state, and local government securities
within the United States. The aggregate cost and fair value at April 30, 2010
for government debt securities classified as available for sale were as
follows:
|
(in
thousands)
|
|||||||||||
Maturity
|
Amortized
Historical Cost |
Fair
Value
|
Gross
Unrealized Holding Gains/(Losses) |
|||||||||
Due
within 1 year
|
$ | 22,012 | $ | 22,014 | $ | 2 | ||||||
Due
after 1 year through 5 years
|
1,520 | 1,515 | (5 | ) | ||||||||
Total
investment in government debt securities
|
$ | 23,532 | $ | 23,529 | $ | (3 | ) |
The
aggregate cost and fair value at April 30, 2009 for government debt securities
classified as available for sale were as follows:
(in
thousands)
|
||||||||||||
Amortized
Historical |
Gross
Unrealized
|
|||||||||||
Maturity
|
Cost
|
Fair
Value
|
Holding Gains
|
|||||||||
Due
within 1 year
|
$ | 8,593 | $ | 8,598 | $ | 5 | ||||||
Due
after 1 year through 5 years
|
37,471 | 37,924 | 453 | |||||||||
Total
investment in government debt securities
|
$ | 46,064 | $ | 46,522 | $ | 458 |
The
increase in gross unrealized loss of $461,000 and gross unrealized gain of
$625,000 on fixed income securities classified as available for sale net of
deferred income tax of $162,000 and $220,000, respectively, were included in
Accumulated Other Comprehensive Income on the Consolidated Balance Sheets as of
April 30, 2010 and 2009, respectively.
The
average yield on the Government debt securities classified as available for sale
at April 30, 2010 and April 30, 2009 was 0.54% and 2.52%,
respectively.
Proceeds
from sales of government debt securities classified as available for sale during
fiscal years 2010, 2009, and 2008 were $69,941,000, $45,526,000, and $9,620,000,
respectively. During fiscal 2010, gains on sales of fixed income securities of
$332,000 were reclassified from Accumulated Other Comprehensive
Income in the Balance Sheet to the Consolidated Statement of
Income. During fiscal 2009, gains on sales of fixed income securities
of $242,000 and losses of $416,000 were reclassified from Accumulated
Other Comprehensive Income in the Balance Sheet to the Consolidated Statement of
Income.
For the
years ended April 30, 2010, 2009, and 2008, income from securities transactions
also included $3,000, $239,000, and $909,000 of dividend income; $856,000,
$1,228,000, and $2,510,000 of interest income, net of bond amortization of
$1,042,000 and $1,655,000 during fiscal years of 2010 and 2009, respectively. In
fiscal years of 2010, 2009 and 2008 income from securities transactions also
included $21,000, $18,000, and $0 of related interest expense,
respectively.
Note
5-Property and Equipment:
Property
and equipment are carried at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets, or in the case of leasehold improvements, over the remaining terms of
the leases. For income tax purposes, depreciation of furniture and
equipment is computed using accelerated methods and buildings and leasehold
improvements are depreciated over prescribed, extended tax lives.
Property
and equipment consist of the following:
April
30,
|
||||||||
2010
|
2009
|
|||||||
(in
thousands)
|
||||||||
Land
|
$ | 726 | $ | 726 | ||||
Building
and leasehold improvements
|
7,283 | 7,283 | ||||||
Furniture
and equipment
|
10,847 | 11,119 | ||||||
18,856 | 19,128 | |||||||
Accumulated
depreciation and amortization
|
(14,599 | ) | (14,654 | ) | ||||
$ | 4,257 | $ | 4,474 |
47
Value
Line, Inc.
Notes
to Consolidated Financial Statements
Note
6-Federal, State and Local Income Taxes:
The
Company computes its income tax provision in accordance with the requirements of
the Income Tax Topic of the FASB's ASC.
The
provision for income taxes includes the following:
Year
ended April 30,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
(in
thousands)
|
||||||||||||
Current
tax expense:
|
||||||||||||
Federal
|
$ | - | $ | 11,410 | $ | 12,570 | ||||||
State
and local
|
- | 1,290 | 2,775 | |||||||||
- | 12,700 | 15,345 | ||||||||||
Deferred
tax expense (benefit):
|
||||||||||||
Federal
|
(7,086 | ) | 212 | (115 | ) | |||||||
State
and local
|
(1,079 | ) | (17 | ) | (36 | ) | ||||||
(8,165 | ) | 195 | (151 | ) | ||||||||
Provision
for income taxes
|
$ | (8,165 | ) | $ | 12,895 | $ | 15,194 |
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 as follows:
Year
ended April 30,
|
||||||||
2010
|
2009
|
|||||||
(in
thousands)
|
||||||||
Federal
tax benefit from net operating loss
|
$ | 6,766 | $ | - | ||||
State
and city tax benefit from net operating loss
|
1,081 | - | ||||||
Unrealized
gains on securities held for sale
|
(1 | ) | (161 | ) | ||||
Unrealized
(gains)/losses on trading securities
|
- | (25 | ) | |||||
Depreciation
and amortization
|
343 | 352 | ||||||
Deferred
professional fees
|
156 | 148 | ||||||
Deferred
charges
|
329 | 210 | ||||||
Other,
net
|
16 | (31 | ) | |||||
Deferred
tax asset/(liability)
|
$ | 8,690 | $ | 493 |
The
Company's deffered tax asset resulting from its net operating loss of
$19,331,000, due to expire in the year 2030, is expected to be utilized in
fiscal 2011. Deferred state and local income taxes
of $152,000 were included in deferred income taxes in total current
assets at April 30, 2009.
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:
Year
ended April 30,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
U.S.
statutory federal rate
|
35.00 | % | 35.00 | % | 35.00 | % | ||||||
Increase/(decrease)
in tax rate from:
|
||||||||||||
Tax
effect of non-deductible portion of provision for
settlement
|
-11.16 | % | - | - | ||||||||
State
and local income taxes, net of federal income tax benefit
|
2.24 | % | 2.31 | % | 4.37 | % | ||||||
Effect
of tax exempt income and dividend deductions
|
0.33 | % | -0.67 | % | -1.96 | % | ||||||
Other,
net
|
-0.37 | % | -0.67 | % | -0.12 | % | ||||||
Effective
income tax rate
|
26.04 | % | 35.97 | % | 37.29 | % |
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.
The
Company's federal income tax returns (included in the Parent's consolidated
returns) and state and city tax returns for fiscal years ended April 30, 2007,
2008, and 2009 are subject to examination by the tax authorities, generally for
three years after they were filed. The IRS and NY tax authorities are
presently conducting an examination for the years ended April 30, 2007 and
2008. The Company does not expect these examinations to have any
material adverse effect on its financial statements.
48
Value
Line, Inc.
Notes
to Consolidated Financial Statements
Note
7-Employees' Profit Sharing and Savings Plan:
Substantially
all employees of the Company and its subsidiaries are members of the Value Line,
Inc. Profit Sharing and Savings Plan (the "Plan"). In general, this
is a qualified, contributory plan which provides for a discretionary annual
Company contribution which is determined by a formula based on the salaries of
eligible employees and the amount of consolidated net operating income as
defined in the Plan. There was no profit sharing contribution in fiscal 2010 or
2009. For the fiscal year ended April 30, 2008 the Company contributed
$1,292,000 to the Plan.
Note
8-Lease Commitments:
On June
4, 1993, the Company entered into a 15 year lease agreement to provide primary
office space. The lease includes free rental periods as well as scheduled base
rent escalations over the term of the lease. The lease was scheduled to expire
in May 2008 subject to an option granted to the Company to extend the term for 5
additional years at a market rental rate. The total amount of the base rent
payments is being charged to expense on the straight-line method over the term
of the lease. The Company recorded a deferred charge on its Consolidated Balance
Sheets to reflect the excess of annual rental expense over cash payments since
inception of the lease. On April 23, 2007, the Company signed a lease amendment
that extended the primary office space lease to May 2013, which increased the
Company's future minimum lease payments. Future minimum payments, exclusive of
forecasted increases in real estate taxes and wage escalations, under operating
leases for equipment and office space, with remaining terms of one year or more,
are as follows:
Year
ended April 30,
|
(in thousands)
|
|||
2011
|
$ | 2,948 | ||
2012
|
2,948 | |||
2013
|
2,948 | |||
Thereafter
|
246 | |||
$ | 9,090 |
Rental
expense for the years ended April 30, 2010, 2009, and 2008 under operating
leases covering office space was $2,948,000, $2,930,000, and $2,858,000,
respectively.
Note
9-Business Segments:
The
Company operates two reportable business segments: (1) Investment Periodicals,
Publishing & Copyright Data and (2) Investment Management. The Investment
Periodicals, Publishing & Copyright Data segment produces investment related
periodical publications (retail and institutional) in both print and electronic
form, and includes copyright data fees for Value Line proprietary ranking system
information and other proprietary information. The Investment Management segment
provides advisory services to the Value Line Funds, as well as institutional and
individual accounts. The segments are differentiated by the products and
services they offer. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
allocates all revenues and expenses, except for depreciation and income from
securities transactions related to corporate assets, between the two reportable
segments.
Disclosure
of Reportable Segment Profit/(Loss) and Segment Assets (in
thousands)
April
30, 2010
|
||||||||||||
Investment
|
||||||||||||
Periodicals,
|
||||||||||||
Publishing &
|
Investment
|
|||||||||||
Copyright Data
|
Management
|
Total
|
||||||||||
Revenues
from external customers
|
$ | 39,208 | $ | 18,932 | $ | 58,140 | ||||||
Intersegment
revenues
|
20 | - | 20 | |||||||||
Income/(loss)
from securities transactions
|
(62 | ) | 160 | 98 | ||||||||
Depreciation
and amortization
|
686 | 39 | 725 | |||||||||
Segment
profit/(loss) from operations*
|
10,425 | (42,614 | ) | (32,189 | ) | |||||||
Segment
assets
|
12,734 | 9,397 | 22,131 | |||||||||
Expenditures
for segment assets
|
809 | 8 | 817 |
49
Value
Line, Inc.
Notes
to Consolidated Financial Statements
April
30, 2009
|
||||||||||||
Investment
|
||||||||||||
Periodicals,
|
||||||||||||
Publishing &
|
Investment
|
|||||||||||
Copyright
Data
|
Management
|
Total
|
||||||||||
Revenues
from external customers
|
$ | 44,268 | $ | 24,973 | $ | 69,241 | ||||||
Intersegment
revenues
|
37 | - | 37 | |||||||||
Income/(loss)
from securities transactions
|
(87 | ) | 10,308 | 10,221 | ||||||||
Depreciation
and amortization
|
1,075 | 53 | 1,128 | |||||||||
Segment
profit from operations
|
16,237 | 7,998 | 24,235 | |||||||||
Segment
assets
|
11,867 | 22,914 | 34,781 | |||||||||
Expenditures
for segment assets
|
1,186 | - | 1,186 | |||||||||
April
30, 2008
|
||||||||||||
Investment
|
||||||||||||
Periodicals,
|
||||||||||||
Publishing
&
|
Investment
|
|||||||||||
Copyright Data
|
Management
|
Total
|
||||||||||
Revenues
from external customers
|
$ | 49,857 | $ | 32,821 | $ | 82,678 | ||||||
Intersegment
revenues
|
97 | - | 97 | |||||||||
Income
from securities transactions
|
230 | 4,170 | 4,400 | |||||||||
Depreciation
and amortization
|
1,543 | 60 | 1,603 | |||||||||
Segment
profit from operations
|
18,464 | 16,002 | 34,466 | |||||||||
Segment
assets
|
10,780 | 76,671 | 87,451 | |||||||||
Expenditures
for segment assets
|
604 | - | 604 |
Reconciliation
of Reportable Segment Revenues, Operating Profit/(Loss) and
Assets
|
||||||||||||
(in thousands) | ||||||||||||
2010
|
2009
|
2008
|
||||||||||
Revenues
|
||||||||||||
Total
revenues for reportable segments
|
$ | 58,160 | $ | 69,278 | $ | 82,775 | ||||||
Elimination
of intersegment revenues
|
(20 | ) | (37 | ) | (97 | ) | ||||||
Total
consolidated revenues
|
$ | 58,140 | $ | 69,241 | $ | 82,678 | ||||||
Segment
profit*
|
||||||||||||
Total
profit/(loss) for reportable segments
|
$ | (32,091 | ) | $ | 34,456 | $ | 38,866 | |||||
Add:
Income from securities transactions
|
||||||||||||
related
to corporate assets
|
739 | 1,404 | 1,894 | |||||||||
Less:
Depreciation related to corporate assets
|
(1 | ) | (12 | ) | (16 | ) | ||||||
Income/(loss)
before income taxes
|
$ | (31,353 | ) | $ | 35,848 | $ | 40,744 | |||||
Assets
|
||||||||||||
Total
assets for reportable segments
|
$ | 22,131 | $ | 34,781 | $ | 87,451 | ||||||
Corporate
assets
|
37,854 | 82,774 | 50,502 | |||||||||
Consolidated
total assets
|
$ | 59,985 | $ | 117,555 | $ | 137,953 |
* Fiscal
2010 includes a charge of $727,000 related to the write-down of development
software and a provision for settlement of approximately $48.1 million included
in the Investment Periodicals, Publishing and Copyright Data and Investment
Management segments, respectively.
Note
10-Net Capital:
The
Company's wholly owned subsidiary, ESI, is subject to the net capital provisions
of Rule 15c3-1 under the Securities Exchange Act of 1934, which requires the
maintenance of minimum net capital of $100,000 or one-fifteenth of aggregate
indebtedness, if larger. At April 30, 2010, the net capital, as defined, of ESI
of $3,149,062 exceeded required net capital by $3,049,062 and the ratio of
aggregate indebtedness to net capital was .35 to 1.
50
Value
Line, Inc.
Notes
to Consolidated Financial Statements
Note
11-Disclosure of Credit Risk of Financial Instruments with Off Balance Sheet
Risk:
In the
normal course of business, the Company may enter into contractual commitments,
including financial futures contracts for securities indices. Financial futures
contracts provide for the delayed delivery of financial instruments for which
the seller agrees to make delivery at a specified future date, at a specified
price or yield. The contract or notional amount of these contracts reflects the
extent of involvement the Company has in these contracts. At April 30, 2010 and
2009, the Company did not have any investment in financial futures
contracts.
Other
than the Value Line Funds as explained in Note 3, no single customer accounted
for a significant portion of the Company's sales in fiscal 2010, 2009 or 2008,
nor its accounts receivable as of April 30, 2010 or 2009.
Note
12-Comprehensive Income:
The
FASB's ASC Comprehensive Income topic requires the reporting of comprehensive
income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that otherwise would not be
recognized in the calculation of net income.
At April
30, 2010 and 2009, the Company held U.S. Government debt securities that are
classified as Available for Sale on the Consolidated Balance Sheets. At April
30, 2008, the Company held both equity securities and U.S. Government debt
securities that are classified as Available for Sale on the Consolidated Balance
Sheets. The change in valuation of these securities, net of deferred income
taxes, has been recorded in Accumulated Other Comprehensive Income in the
Company's Balance Sheets.
The
components of comprehensive income that are included in the Statement of Changes
in Shareholders' Equity are as follows:
(in
thousands)
|
||||||||||||
Before
|
Tax
|
Net
of
|
||||||||||
Tax
|
(Expense)
|
Tax
|
||||||||||
Amount
|
or
Benefit
|
Amount
|
||||||||||
Year
ended April 30, 2010
|
||||||||||||
Unrealized
gains/(losses) on securities:
|
||||||||||||
Unrealized
holding gains/(losses) arising during the period
|
$ | (285 | ) | $ | 100 | $ | (185 | ) | ||||
Less:
Reclassification adjustments
|
||||||||||||
for
gains realized in net income
|
(176 | ) | 62 | (114 | ) | |||||||
Other
comprehensive income
|
$ | (461 | ) | $ | 162 | $ | (299 | ) | ||||
Year
ended April 30, 2009
|
||||||||||||
Unrealized
gains/(losses) on securities:
|
||||||||||||
Unrealized
holding gains/(losses) arising during the period
|
$ | (13,731 | ) | $ | 4,834 | $ | (8,897 | ) | ||||
Add: Reclassification
adjustments for
|
||||||||||||
losses
realized in net income
|
416 | (146 | ) | 270 | ||||||||
Less:
Reclassification adjustments
|
||||||||||||
for
gains realized in net income
|
(9,781 | ) | 3,442 | (6,339 | ) | |||||||
Other
comprehensive income
|
$ | (23,096 | ) | $ | 8,130 | $ | (14,966 | ) | ||||
Year
ended April 30, 2008
|
||||||||||||
Unrealized
gains on securities:
|
||||||||||||
Unrealized
holding gains/(losses) arising during the period
|
$ | 804 | $ | (283 | ) | $ | 521 | |||||
Add: Reclassification
adjustments for
|
||||||||||||
losses
realized in net income
|
- | - | - | |||||||||
Less:
Reclassification adjustments
|
||||||||||||
for
gains realized in net income
|
(2,793 | ) | 983 | (1,810 | ) | |||||||
Other
comprehensive income
|
$ | (1,989 | ) | $ | 700 | $ | (1,289 | ) |
51
Value
Line, Inc.
Notes
to Consolidated Financial Statements
Note
13-Accounting for the Costs of Computer Software Developed for Internal
Use:
The
Company has adopted the provisions of the Statement of Position 98-1 (SOP 98-1),
"Accounting for the Costs of Computer Software Developed for Internal Use". SOP
98-1 requires companies to capitalize as long-lived assets many of the costs
associated with developing or obtaining software for internal use and amortize
those costs over the software's estimated useful life in a systematic and
rational manner.
At April
30, 2010 and 2009, the Company capitalized $262,000 and $323,000 of
costs related to the development of software for internal use. Such
costs are capitalized and amortized over the expected useful life of the asset
which is approximately 3 years. Amortization expense for the years
ended April 30, 2010, 2009, and 2008 was $285,000, $335,000, and $600,000,
respectively. During fiscal year 2010, the Company expensed $727,000
of capitalized development costs related to a production
software project that was determined to be no longer
viable.
Note
14-Legal Proceedings:
On
November 4, 2009, the Company, ESI, and two former officers and directors of the
Company concluded a settlement with the Securities and Exchange Commission
(“SEC”) as a result of an investigation regarding the execution of portfolio
transactions on behalf of the Value Line Funds managed by the Company (the
“Settlement”). In connection with the Settlement, the Company
recorded a provision for settlement of $48,106,000, of which $43,706,000 was
paid to the SEC in November 2009 representing disgorgement of commissions
received in the amount of $24,168,979, prejudgment interest of $9,536,786, and a
civil penalty in the amount of $10,000,000. Pursuant to Section
308(a) of the Sarbanes-Oxley Act of 2002, a fund will be created for The
Company’s disgorgement, interest and penalty (“Fair Fund”). The Company will
bear all costs associated with any Fair Fund distribution, including retaining a
third party consultant approved by the SEC staff to administer any Fair Fund
distribution. Also as part of the Settlement, the two former officers
and directors each agreed to pay a civil penalty, is barred from association
with any broker, dealer or investment adviser, and is prohibited from serving as
an employee, officer, director, member of an advisory board, investment adviser
or depositor of, or principal underwriter for, a registered investment company
or affiliated person of such investment adviser, depositor, or principal
underwriter, subject to a limited exception (limited in scope and for a one-year
period) for the former CEO and indirect majority shareholder. As of
the date of this report, the former CEO and indirect majority shareholder has
not yet complied with the portion of the settlement order that requires her to
disassociate from EULAV and ESI. The Company and the indirect
majority shareholder are exploring various alternatives to comply with the
disassociation requirement. The Company cannot estimate the impact to
its business or financial condition or results of operations if the remaining
terms of the settlement order are not met in a timely manner.
On
September 3, 2008, VLI was served with a derivative shareholder's suit filed in
New York County Supreme Court naming VLI's current and former Directors and
alleging breach of fiduciary duty and related allegations, all arising from the
SEC matter. The complaint sought return of remuneration by the Directors and
other remedies. A second derivative shareholder's suit was filed in New York
County Supreme Court on or about November 9, 2009, naming certain current and
former VLI Directors and the Parent as defendants. This suit primarily restates
the same or similar allegations and seeks similar remedies as were sought in the
earlier derivative shareholder's suit served in September 2008. By order dated
January 8, 2010, the Court granted Plaintiffs' motion to consolidate the two
cases. Defendants' time to answer, move or otherwise respond to the consolidated
amended complaint has been adjourned until August 20, 2010. VLI has advised its
insurance carriers of these developments and it is not possible to estimate an
amount or range of loss on VLI's financial statements.
52