VALUE LINE INC - Quarter Report: 2012 October (Form 10-Q)

	New York				13-3139843
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

 

 

Large accelerated filer o	Accelerated filer o	Non-accelerated filer   x	Smaller reporting company o
		(Do not check if a smaller reporting company)

 

Common stock, $0.10 par value

9,892,941 Shares

 

			Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Condensed Financial Statements
	Consolidated Condensed Balance Sheets as of October 31, 2012 and April 30, 2012		3
	Consolidated Condensed Statements of Income for the three and six months ended October 31, 2012 and 2011		4
	Consolidated Condensed Statements of Comprehensive Income for the three and six months ended October 31, 2012 and 2011		5
	Consolidated Condensed Statements of Cash Flows for the six months ended October 31, 2012 and 2011		6
	Consolidated Condensed Statement of Changes in Shareholders’ Equity for the six months ended October 31, 2012		7
	Consolidated Condensed Statement of Changes in Shareholders’ Equity for the six months ended October 31, 2011		8
	Notes to Consolidated Condensed Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		30
Item 4.	Controls and Procedures		32
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 5.	Other Information		33
Item 6.	Exhibits		33
	Signatures		34

 

 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

 

 

 

 

		Common stock								Additional paid-in				Treasury Stock								Retained				Accumulated Other Comprehensive
		Shares				Amount				capital				Shares				Amount				earnings				income/(loss)				Total
Balance at April 30, 2012			10,000,000			$	1,000			$	991				(103,619	)		$	(1,390	)		$	31,628			$	85			$	32,314
Net income																							3,348								3,348
Change in unrealized gains on securities, net of taxes																											27				27
Purchase of treasury stock															(3,440	)			(30	)											(30	)
Dividends declared																							(2,969	)							(2,969	)
Balance at October 31, 2012			10,000,000			$	1,000			$	991				(107,059	)		$	(1,420	)		$	32,007			$	112			$	32,690

 

 

 

 

 

 

 

Note 1 - Organization and Summary of Significant Accounting Policies:
Value Line, Inc. ("Value Line" or "VLI", and collectively with its subsidiaries, the “Company”) is incorporated in the State of New York.  The name "Value Line" as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company.  The Company's primary business is producing investment periodicals and related 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.
The Consolidated Condensed Balance Sheets as of October 31, 2012 and April 30, 2012, which have been derived from audited Consolidated Financial Statements, and the unaudited interim Consolidated Condensed Financial Statements were prepared following the interim reporting requirements of the Securities and Exchange Commission (“SEC”).  In the opinion of management, the accompanying Unaudited Interim Consolidated Condensed Financial Statements contain all adjustments (consisting of normal recurring accruals except as noted below) considered necessary for a fair presentation.  This report should be read in conjunction with the audited financial statements and footnotes contained in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2012 filed with the SEC on July 27, 2012 (the “Form 10-K”).   Results of operations covered by this report may not be indicative of the results of operations for the entire year.
Use of Estimates:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates.
Principles of Consolidation:
The Company follows the guidance in the Financial Accounting Standards Board's ("FASB") Topic 810 “Consolidation” to determine if it should consolidate its investment in a variable interest entity ("VIE"). A VIE is a legal entity in which either (i) equity investors do not have sufficient equity investment at risk to enable the entity to finance its activities independently or (ii) the equity holders at risk lack the obligation to absorb losses, the right to receive residual returns or the right to make decisions about the entity’s activities that most significantly affect the entity's economic performance.  A holder of a variable interest in a VIE is required to consolidate the entity if it is determined that it has a controlling financial interest in the VIE and is therefore the primary beneficiary.  The determination of a controlling financial interest in a VIE is based on a qualitative assessment to identify the variable interest holder, if any, that has (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) either the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.  The accounting guidance requires the Company to perform an ongoing assessment of whether the Company is the primary beneficiary of a VIE and the Company has determined it is not the primary beneficiary of a VIE (see Note 3).
In accordance with FASB's Topic 810, the assets, liabilities, and results of operations of subsidiaries in which the Company has a controlling interest have been consolidated.  All significant intercompany accounts and transactions have been eliminated in consolidation.  On December 23, 2010, the Company completed the  deconsolidation of the investment management related affiliates (the "Restructuring Transaction") in accordance with FASB's Topic 810.  As part of the Restructuring Transaction, the Company received a significant non-voting revenues interest (excluding distribution revenues) and a non-voting profits interest in the new entity, EULAV Asset Management, a Delaware statutory trust (“EAM” or “EAM Trust”).  The Company relied on the guidance in FASB's ASC Topics 323 and 810 in its determination not to consolidate its investment in EAM and to account for such investment under the equity method of accounting. The Company reports the amount it receives for its non-voting revenues and non-voting profits interests as a separate line item below operating income in the Consolidated Condensed Statements of Income.
Revenue Recognition:
Depending upon the product, subscription fulfillment for Value Line periodicals and related publications is available in print or digitally, via internet access.  The length of a subscription varies by product and offer received by the subscriber.  Generally, subscriptions are offered as annual subscriptions.  Subscription revenues, net of discounts, are recognized ratably on a straight line basis when the product is served to the client over the life of the subscription.  Accordingly, the amount of subscription fees to be earned by fulfilling subscriptions after the date of the balance sheets are shown as unearned revenue within current and long term liabilities.
Copyright data revenues are derived from providing certain Value Line trademarks and the 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 ("ETFs").  The Company earns asset-based copyright data fees as specified in the individual agreements.  Revenue is recognized monthly over the term of the agreement and, because it is asset-based, will fluctuate as the market value of the underlying portfolio increases or decreases in value.
Investment in Unconsolidated Entities:
The Company accounts for its investment in its unconsolidated entity, EAM, using the equity method of accounting in accordance with FASB’s ASC 323.  The equity method is an appropriate means of recognizing increases or decreases measured by GAAP in the economic resources underlying the investments.  Under the equity method, an investor recognizes its share of the earnings or losses of an investee in the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee declares a dividend or distribution. An investor adjusts the carrying amount of an investment for its share of the earnings or losses recognized by the investee.

The Company’s “interests” in EAM, the investment adviser to and the sole member of the distributor of the Value Line Funds, consist of a "non-voting revenues interest" and a "non-voting profits interest" in EAM as defined in the EAM Declaration of Trust dated as of December 23, 2010 (the "EAM Trust Agreement").  The business of EAM is managed by its trustees each owning 20% of the voting profits interest of EAM and by its officers subject to the direction of the trustees.  The non-voting revenues interest (“Revenues Interest”) entitles the Company to receive a range of 41% to 55%, based on the amount of EAM’s adjusted gross revenues, excluding distribution revenues from EULAV Securities, the distributor of the Value Line Funds ("ES").  The non-voting profits interest (“Profits Interest”) entitles the Company to receive 50% of EAM's profits, subject to certain limited adjustments as defined in the EAM Trust Agreement.  The Revenues Interest and at least 90% of the Profits Interest are to be distributed each quarter to all interest holders of EAM, including Value Line.  The Company's Revenues Interest in EAM excludes participation in the service and distribution fees of EAM's subsidiary, ES.  The Company reflects its non-voting revenues and non-voting profits interests in EAM as non-operating income under the equity method of accounting.  Although the Company does not have control over the operating and financial policies of EAM, pursuant to the EAM Trust Agreement, the Company has a contractual right to receive its share of EAM's revenues and profits.
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.
Service and distribution fees are received by the distributor from the Value Line Funds in accordance with service and distribution plans under rule 12b-1 of the Investment Company Act of 1940 on a monthly basis and are calculated based upon the average daily net assets of the respective Fund in accordance with each Fund's prospectus.  These plans are compensation plans, which means that the distributor’s fees under these plans are payable without regard to actual expenses incurred by the distributor, and therefore the distributor may earn a profit under the plan.
The Value Line Funds are open-end management companies registered under the Investment Company Act of 1940 (the "1940 Act").  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.
Valuation of Securities:
The Company's securities classified as cash equivalents and available-for-sale consist of shares of money market funds that invest primarily in short-term U.S. Government securities, investments in ETFs, shares of equity securities in various publicly traded companies and bank certificates of deposits and are valued in accordance with the requirements of the Fair Value Measurements Topic of the FASB's ASC 820.  The securities classified available-for-sale reflected in the Consolidated Condensed Balance Sheets are valued at market and unrealized gains and losses, net of applicable taxes, are reported as a separate component of shareholders' equity. Realized gains and losses on sales of the securities classified as available-for-sale are recorded in earnings as of the trade date and are determined on the identified cost method.
The Company classifies its securities available-for-sale as current assets to properly reflect its liquidity and to recognize the fact that it has liquid assets available-for-sale should the need arise.
Market valuations of securities listed on a securities exchange and ETF shares are based on the closing sales prices on the last business day of each month. The market value of the Company's fixed maturity U.S. Government debt securities is determined utilizing publicly quoted market prices.  Cash equivalents consist of investments in money market funds that invest primarily in U.S. Government securities valued in accordance with rule 2a-7 under the 1940 Act.
The Fair Value Measurements Topic of FASB's ASC 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 Company had no other financial instruments such as futures, forwards and swap contracts. For the periods ended October 31, 2012 and April 30, 2012, there were no Level 2 nor Level 3 investments. The Company does not have any liabilities subject to fair value measurement.
Advertising expenses:
The Company expenses advertising costs as incurred.
Income Taxes:
The Company computes its income tax provision in accordance with the Income Tax Topic of the FASB's ASC.  Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Consolidated Condensed Financial Statements. Deferred tax liabilities and assets are determined based on the differences between the book values and the tax bases of particular assets and liabilities, using tax rates currently in effect for the years in which the differences are expected to reverse.
The Income Tax Topic of the FASB's ASC establishes for all entities, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures.  As of October 31, 2012, 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 material 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 period. Any shares that are reacquired during the period are weighted for the portion of the period that they are outstanding.  The Company does not have any potentially dilutive common shares from outstanding stock options, warrants, restricted stock, or restricted stock units.
Cash and Cash Equivalents:
For purposes of the Consolidated Condensed Statements of Cash Flows, the Company considers all cash held at banks and short term liquid investments with an original maturity of less than three months to be cash and cash equivalents. As of October 31, 2012 and April 30, 2012, cash equivalents included $7,044,000 and $10,848,000, respectively, for amounts held as bank certificates of deposits and investments in money market mutual funds that invest in short term U.S. government securities.
Note 2 - Investments:
Securities Available-for-Sale:
Investments held by the Company and its subsidiaries are classified as securities available-for-sale in accordance with FASB's ASC 320, Investments - Debt and Equity Securities.  All of the Company's securities classified as available-for-sale were readily marketable and had a maturity of twelve months or less and are classified as current assets on the Consolidated Condensed Balance Sheets.
Equity Securities:
Equity securities classified as available-for-sale, consist of investments in common stocks, ETFs that attempt to replicate the performance of certain equity indexes, ETFs that attempt to replicate the inverse of the price performance of certain equity indexes and ETFs that hold preferred shares primarily of financial institutions.  As of October 31, 2012 and April 30, 2012, the Company held equity securities consisting primarily of ETFs and select common stock holdings of blue chip companies with a concentration on large capitalization companies with high relative dividend yields, all classified as securities available-for-sale on the Consolidated Condensed Balance Sheets.  Additionally, as of October 31, 2012 and April 30, 2012, the Company held non-leveraged ETFs, classified as securities available-for-sale, whose performance inversely corresponds to the market value changes of investments in other ETF securities held in the equity portfolio for dividend yield.

As of October 31, 2012 and April 30, 2012, the aggregate cost of the equity securities classified as available-for-sale, which consist of investments in the iShares Dow Jones Select Dividend Index (DVY), SPDR S&P Dividend (SDY), First Trust Value Line Dividend Index (FVD), PowerShares Financial Preferred (PGF), certain common shares of equity securities and inverse equity index ETFs,  was $4,950,000 and $3,749,000, respectively, and the fair value was $5,123,000 and $3,881,000, respectively.
There were no sales or proceeds from sales of equity securities during the six months ended October 31, 2012 and October 31, 2011.  The increases in gross unrealized gains on equity securities classified as available-for-sale of $41,000, net of deferred  taxes of $14,000, were included in Shareholders' Equity at October 31, 2012.  The decreases in gross unrealized gains on equity securities classified as available-for-sale of $38,000, net of deferred  taxes of $14,000, were included in Shareholders' Equity at October 31, 2011.
The carrying value and fair value of securities available-for-sale at October 31, 2012 were as follows:

Government Debt Securities (Fixed Income Securities):
Fixed income securities consist of government debt securities issued by the United States federal government.  There were no fixed income securities as of October 31, 2012 or April 30, 2012.
During  the six months ended October 31, 2011, proceeds from maturities and sales of government debt securities classified as available-for-sale were $8,995,000 and realized loss on sales of fixed income securities was $5,000.  The decreases in gross unrealized gains on fixed income securities classified as available-for-sale of $7,000, net of deferred  taxes of $2,000, were included in Shareholders' Equity at October 31, 2011.
Income from securities transactions was comprised of the following:

(1) This amount was reclassified from Accumulated Other Comprehensive Income in the Consolidated Condensed Balance Sheets to the Consolidated Condensed Statements of Income.
The changes in the value of equity and fixed income securities investments are recorded in Other Comprehensive Income in the Consolidated Condensed Financial Statements.  Realized gains and losses are recorded as of the trade date in the Consolidated Condensed Statements of Income when securities are sold, mature or are redeemed.  As of October 31, 2012 and April 30, 2012, accumulated other comprehensive income was $112,000 and $85,000, which is net of deferred taxes of $61,000 and $47,000, respectively.

Investment in Unconsolidated Entities:
Equity Method Investment:
As of October 31, 2012, and April 30, 2012, the Company's investment in EAM Trust, on the Consolidated Condensed Balance Sheet was $57,354,000 and $56,331,000, respectively.
The value of VLI’s investment in EAM at October 31, 2012 and April 30, 2012 reflects the fair value of contributed capital of $55,805,000 at inception, plus $5,820,000 of cash and liquid securities in excess of working capital requirements contributed to EAM’s capital account by VLI, plus VLI's share of non-voting revenues and non-voting profits from EAM less distributions, made quarterly to VLI by EAM, during the period subsequent to its initial investment through the dates of the Consolidated Condensed Balance Sheets.
It is anticipated that EAM will have sufficient liquidity and earn enough profit to conduct its current and future operations so the management of EAM will not need additional funding. Although the distributor had historically received, from the Value Line Funds under the compensation plans it had in place with the Funds, amounts in excess of its actual expenditures, in more recent years the distributor has been spending amounts on promotion of the Value Line Funds in excess of the compensation received from the Funds.  Over time, EAM anticipates that its total future expenditures on such promotion will equal or exceed its total future revenues under the Funds’ distribution plans.  However, if that should not occur, EAM has no obligation to reimburse the Value Line Funds.
The Company monitors its Investment in EAM Trust for impairment to determine whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment.  Impairment indicators include, but are not limited to the following: (a) a significant deterioration in the earnings performance, asset quality, or business prospects of the investee, (b) a significant adverse change in the regulatory, economic, or technological environment of the investee, (c) a significant adverse change in the general market condition of the industry in which the investee operates, or (d) factors that raise significant concerns about the investee’s ability to continue as a going concern such as negative cash flows, working capital deficiencies, or noncompliance with statutory capital and regulatory requirements.  EAM did not record any impairment losses for its assets during the fiscal years 2013 or 2012.
The components of EAM’s investment management operations were as follows:

(1) For the six months ended October 31, 2012, investment management fee waivers primarily related to the U.S. Government Money Market Fund ("USGMMF") and the 12b-1 fee waivers related to nine of the Value Line Mutual Funds.  For the six months ended October 31, 2011, investment management fee waivers primarily related to the USGMMF and the 12b-1 fee waivers related to eleven of the Value Line Mutual Funds.

(2) Represents EAM's net income, after giving effect to Value Line’s non-voting revenues interest, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.

(1) At October 31, 2012, EAM's total liabilities included a payable to VLI for its accrued non-voting revenues and non-voting profits interests of $1,513,000.
Note 3 - Variable Interest Entity
The Company retained a  non-voting revenues interest and a 50% non-voting profits interest in EAM, which was formed to carry on the asset management and mutual fund distribution businesses formerly conducted by the Company.  EAM is considered to be a VIE.  The Company makes its determination for consolidation of EAM as a VIE based on a qualitative assessment of the purpose and design of EAM, the terms and characteristics of the variable interests in EAM, and the risks EAM is designed to originate and pass through to holders of variable interests.  Other than EAM, the Company does not have an interest in any other VIEs.

The Company has determined that it does not have a controlling financial interest in EAM because it does not have the power to direct the activities of EAM that most significantly impact its economic performance.  Value Line does not hold any voting stock of EAM and it does not have any involvement in the day-to-day activities or operations of EAM.  Although the EAM Trust Agreement provides Value Line with certain consent rights and contains certain restrictive covenants related to the activities of EAM, these are considered to be protective rights and therefore Value Line does not maintain control over EAM.
In addition, although EAM is expected to be profitable, there is a risk that it could operate at a loss.   While all of the profit interest shareholders in EAM are subject to variability based on EAM’s operations risk, Value Line’s non-voting revenues interest in EAM is a preferred interest in the revenues of EAM, rather than a profits interest in EAM, and Value Line accordingly believes it is subject to proportionately less risk than other holders of the profits interests.
The Company has not provided any explicit or implicit financial or other support to EAM other than what was contractually agreed to in the EAM Trust Agreement.  Value Line has no obligation to fund EAM in the future and, as a result, has no exposure to loss beyond its initial investment and any undistributed revenues and profits interests retained in EAM.  The following table presents the total assets of EAM, the maximum exposure to loss due to involvement with EAM, as well as the value of the assets and liabilities the Company has recorded on its Consolidated Condensed Balance Sheets for its interest in EAM.

(1)  Reported within Long Term Assets on the Consolidated Condensed Balance Sheets.
Note 4 - Supplementary Cash Flow Information:

See Note 7-Related Party Transactions for amounts associated with the Parent.
Note 5 - 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. For the six months ended October 31, 2012 and 2011, the estimated profit sharing plan contribution, which is included as an expense in salaries and employee benefits in the Consolidated Condensed Statements of Income, was $70,000 and $230,000, respectively.
Note 6 - 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.
In May 2012, the Company adopted the provisions of Accounting Standards Update 2011-05 to reflect comprehensive income in two statements which include the components of net income and total net income in the first statement, immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income and a total for comprehensive income.
As of October 31, 2012, the Company held equity securities consisting primarily of ETFs and select common stock holdings of blue chip companies with a concentration on large capitalization companies with high relative dividend yields that are classified as securities available-for-sale on the Consolidated Condensed Balance Sheets.  Additionally, as of October 31, 2012, the Company held non-leveraged ETFs, classified as securities available-for-sale, whose performance inversely corresponds to the market value changes of investments in other ETF securities held in the equity portfolio for dividend yield.  As of October 31, 2011, the Company held both equity and U.S. Government debt securities that are classified as available-for-sale on the Consolidated Condensed Balance Sheets.  The change in valuation of these securities, net of deferred income taxes, has been recorded in accumulated other comprehensive income in the Company's Consolidated Condensed Balance Sheets.

The components of comprehensive income included in the Consolidated  Condensed Statements of Income and Changes in Shareholders' Equity for the six months ended October 31, 2012 are as follows:

The components of comprehensive loss that are included in the Consolidated  Condensed Statements of Income and Changes in Shareholders' Equity for the six months ended October 31, 2011 are as follows:

Note 7 - Related Party Transactions:
Investment Management (overview):
On December 23, 2010, the Company deconsolidated its asset management and mutual fund distribution businesses and its interest in these businesses was restructured as a non-voting revenues and non-voting profits interests in EAM.  Accordingly, the Company no longer reports this operation as a separate business segment, although it still maintains a significant interest in the cash flows generated by this business and will receive non-voting revenues and non-voting profits interests going forward, as discussed below.  Total assets in the Value Line Funds managed and/or distributed by EAM at October 31, 2012, were $2.05 billion, 0.8% above total assets of $2.03 billion in the Value Line Funds managed by EAM at October 31, 2011, as a result of net appreciation in equity assets under management partially offset by redemptions within the funds.
The USGMMF in accordance with a plan approved by the Fund Board merged into a third party fund, the Daily Income Fund, managed by Reich & Tang Asset Management LLC ("Reich & Tang"), effective October 19, 2012.  Final documentation was approved at the fund board meeting held during June 2012.  EAM will distribute the Daily Income Fund on behalf of Reich & Tang and maintain the shareholder accounts on behalf of the Value Line Funds shareholders who invest in the Daily Income Fund, but EAM is no longer subsidizing the expenses of the money market fund resulting from the low interest rate economic environment.  In addition, the merger of the USGMMF will eliminate the cost of administration and fund accounting.
The non-voting revenues and 90% of the Company's non-voting profits interests due from EAM to the Company are payable each quarter under the provisions of the EAM Trust Agreement.  The distributable amounts earned through the balance sheet date, which is included in the Investment in EAM Trust on the Consolidated Condensed Balance Sheets, and not yet paid, were $1,513,000 and $497,000 at October 31, 2012 and April 30, 2012, respectively.
EAM Trust - VLI's non-voting revenues and non-voting profits interests:
The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business.  EAM currently has no separately managed account clients.  During the period from December 23, 2010 until May 28, 2011, EAM occupied a portion of the premises that the Company leases from a third party.  The Company received $44,000 for the month of May, 2011 for rent and certain accounting and other administrative support services provided to EAM on a transitional basis during such period.  The Company recorded income from its non-voting revenues interest and its non-voting profits interests in EAM as follows:

Transactions with Parent:
During the six months ended October 31, 2012 and 2011, the Company was reimbursed $88,000 and $167,000,  respectively, for payments it made on behalf of and for services the Company provided to the Parent.  There were no Receivables from affiliates or receivables from the Parent on the Consolidated Condensed Balance Sheets at October 31, 2012 and April 30, 2012.
The Company is a party to a tax-sharing arrangement with the Parent which allocates the tax liabilities of the two Companies between them.  The Company made $230,000 and $245,000 of federal tax payments to the Parent during the six months ended October 31, 2012 or 2011, respectively.  Prepaid and refundable income taxes on the Consolidated Condensed Balance Sheets included $0 and $530,000 of prepaid federal income tax due from the Parent at October 31, 2012 and April 30, 2012, respectively.

From time to time, the Parent has purchased additional shares of common stock of the Company in the market when and as the Parent has determined it to be appropriate.  The Parent may make additional purchases of common stock of the Company from time to time in the future. As of October 31, 2012, the Parent owned approximately 87.3% of the outstanding shares of common stock of the Company.
Note 8 - Federal, State and Local Income Taxes:
In accordance with the requirements of the Income Tax Topic of the FASB's ASC, the Company's provision for income taxes includes the following:

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 asset and deferred tax liability are as follows:

The Company's net operating loss carryforward from fiscal 2012 of approximately $360,000 was fully utilized during the six months ended October 31, 2012.  The tax effect of temporary differences giving rise to the Company's long term deferred tax liability is primarily a result of the federal, state, and local taxes related to the $50,510,000 gain from deconsolidation of the Company's asset management and mutual fund distribution subsidiaries, partially offset by the long term tax benefit related to the non-cash post-employment compensation of $1,770,000 granted to VLI's former employee.

At the end of each interim reporting period, the Company estimates the effective income tax rate to apply for the full year. The Company uses the effective income tax rate determined to provide for income taxes on a year-to-date basis and reflects the tax effect of any tax law changes and certain other discrete events in the period in which they occur.
The annual effective tax rate may change during fiscal 2013 due to a number of factors including but not limited to an increase or decrease in the ratio of items that do not have tax consequences to pre-tax income, the Company's geographic profit mix between tax jurisdictions, new tax laws, new interpretations of existing tax laws and rulings by and settlements with tax authorities.
The overall effective income tax rates, as a percentage of pre-tax income, for the six months ended October 31, 2012 and 2011, were 37.18% and 34.60%, respectively.  The fluctuation in the effective income tax rate during the six months ended October 31, 2012, is attributable to the recognition of an alternative minimum tax benefits during the prior fiscal year and a higher percentage of income subject to state and local taxes during the current fiscal year.
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income as a result of the following:

The Company believes that, as of October 31, 2012, there were no material uncertain tax positions that would require disclosure under GAAP.
The Company is included in the consolidated federal income tax return of the Parent.  The Company has a tax sharing agreement which requires it to make tax payments to the Parent equal to the Company's liability/(benefit) 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 2009, 2010, and 2011 were subject to examination by the tax authorities, generally for three years after they were filed with the tax authorities.  In February 2012, the Internal Revenue Service concluded its examination of the Company's federal income tax returns through the fiscal year 2010, which resulted in no changes that had any adverse effect on the Company's financial statements.
Note 9 - 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, net was comprised of the following:

Note 10 - 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.
The Company capitalized  $839,000 and $2,165,000 related to the development of software for internal use for the six months ended October 31, 2012 and 2011, respectively, of which $758,000 and $1,271,000 related to development costs for  the digital production software  project and $81,000 and $894,000 related to a new fulfillment system, respectively.  Such costs are capitalized and amortized over the expected useful life of the asset which is approximately from 3 to 5 years.  Total amortization expenses for the six months ended October 31, 2012 and October 31, 2011 were $617,000 and $128,000, respectively.

The new fulfillment system was placed in service on December 1, 2011.  The Company's refreshed website, Single Sign On ("SSO") and new e-commerce and website shopping cart were also placed in service during December 2011.  A new institutional sales website ValueLinePro.com was launched by the Company during March 2012.
Note 11 - Treasury Stock and Repurchase Program:
On January 20, 2011, the Company's Board of Directors approved the repurchase of shares of the Company’s common stock up to an aggregate purchase amount of $3,200,000.  The repurchase program expired on January 15, 2012 and was not renewed by the Company's Board of Directors.
On September 19, 2012, the Company's Board of Directors approved the repurchase of shares of the Company’s common stock, at such times and prices as management determined to be advisable up to an aggregate purchase amount of $3,000,000.

(1) Includes the balance of 18,400 shares with a total average cost of $354,000 that were acquired prior to the repurchase program authorized in January 2011.
(2) Includes the balance of 85,219 shares with a total average cost of $1,036,000 that were acquired during the former repurchase program, which was authorized in January 2011 and expired in January 2012.