UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x | |
x | Annual Report Pursuant to SectionANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the |
| Securities Exchange Act ofOR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the fiscal year ended April 30, 20052006
or
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act ofo | 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__________________________________________
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 | (IRS Employer Identification |
incorporation or organization) | Number) | (I.R.S. Employer Identification No.) |
220 East 42nd Street, New York, NY 10017-5891
(Address of principal executive offices) (Zip220 East 42nd Street, New York, New York | | 10017-5891 |
(Address of principal executive offices) | | (Zip Code) |
Registrant's telephone number, including area code: code (212) 907-1500
Securities registered pursuant to Section 12(b) of the Act:None
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o 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. o 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)15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x NoYes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationRegulations S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitiveindefinitive 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 or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer oAccelerated filer oNon-accelerated filer xIndicate by check mark whether the registrant is an accelerated filera shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x x
The aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates at October 31, 2004,2005, was $48,877,000. $52,672,152.
There were 9,981,600 shares of the registrant’s Common Stock outstanding at June 9, 2005.30, 2006.
DOCUMENTS INCORPORATED BY REFERENCE
None
Part I
Item 1. BUSINESS.
Value Line, Inc. (the "Company"), a New York corporation, was organized in 1982 and is the successor to substantially all of the operations of Arnold Bernhard & Company, Inc. ("AB&Co."). As of June 9, 2005,30, 2006, AB & Co. owned approximately 86.5% of the Company’s issued and outstanding common stock.
The Company's primary businesses are producing investment related periodical publications through its wholly-owned subsidiary, Value Line Publishing, Inc. ("VLP"), and providing investment advisory services to mutual funds, institutions and individual clients.accounts. VLP publishes in both print and electronic formats The Value Line Investment SurveyÒ, one of the nation's major periodical investment services, as well as The Value Line Investment Survey - Small and Mid-Cap Edition, The Value Line 600, Value Line Select, The Value Line Mutual Fund Survey, The Value Line No-Load Fund Advisor, The Value Line Special Situations Service, The Value Line Daily Options Survey and The Value Line Convertibles Survey. VLP also provides current and historical financial databases (DataFile,which include DataFile, Estimates & Projections, Convertibles and Mutual Funds and other services) in standard computer formats andformats. The Company also markets investment analysis software which includes The Value Line Investment Analyzer, Value Line ETF Survey, Mutual Fund Survey for Windows®, Value Line Daily Options Survey, Value Line Electronic Convertibles and Value Line Research Center. These electronic products are available on CD-ROM and directlyand/or on the Company’s internet site, www.valueline.com. The Company's print and electronic services are marketed from time to time through media, direct mail and the internet to retail and institutional investors.
The Company is the investment adviser for the Value Line Family of Mutual Funds (“Value Line Funds”), which on April 30, 2005, include2006 included 14 open-end investment companies with various investment objectives. In addition, the Company manages investments for private and institutional clients. The Company is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940.
In addition to VLP,Value Line Publishing, the Company's other wholly-owned subsidiaries include a registered broker-dealer, Value Line Securities, Inc., Vanderbilt Advertising Agency, Inc., Compupower Corporation and an advertising agency,Value Line Distribution Center (“VLDC”). Value Line Securities, Inc. is a registered broker-dealer and distributor to the Value Line Funds. Vanderbilt Advertising Agency, Inc. These subsidiaries primarily provide services used byplaces advertising on behalf of the Company inand its investment management and publishingsubsidiaries’ businesses. Compupower Corporation another subsidiary, serves the subscription fulfillment needs of the Company'sVLP’s publishing operations. Value Line Distribution Center, Inc. (“VLDC”)VLDC primarily handles all of the mailings of the publications to the Company’sVLP’s subscribers. Additionally, VLDC provides office spaceis a disaster recovery site for Compupower
Corporation’s computer operations center.the New York operations. The name "Value Line," as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company. As used herein, except as the context otherwise requires, the term "Company" includes the Company and its consolidated subsidiaries.
A. | Investment Information Periodicals and Publications. |
VLP publishes investment periodicals, related publications and produces electronic products described below:
| l. | Periodicals and Publications: |
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 marketprice performance. A combined Index on our Web site allows the subscriber to easily locate a specific stock among the approximately 3,500 stocks covered in the Small and Mid-Cap Edition and in the standard edition of The Value Line Investment Survey. Two of the more important evaluations for each stock covered are "Timeliness(tm)" and "Safety(tm).” Timeliness(tm) 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 approximately 81 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 Small and Mid-Cap Edition of 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 NASDAQ, beyond the approximately 1,700 stocks of larger-capitalization companies traditionally covered in The Value Line Investment Survey - Standard Edition. Like 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 performance 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 Standard Edition of The Value Line Investment Survey. A combined Index, published quarterly, allows the subscriber to easily locate a specific stock among the approximately 3,500 stocks covered.
The Small and Mid-Cap Edition includes a number of unique as well as standard features. One unique feature, The Performance Ranking System, incorporates many of the elements of the Value Line Timeliness(tm) Ranking System, modified to accommodate the approximate 1,800 stocks in the Small and Mid-Cap Edition. The Performance(tm) Rank is based on earnings growth and price momentum and is designed to predict relative price performance over the next six to twelve months.
The principal difference between the Small and Mid-Cap Edition and The Value Line Investment Survey’s Standard Edition is that the Small and Mid-Cap Edition does not include Value Line’s financial forecasts or analysts' comments or a Selection & Opinion section. These modifications allow VLP to offer this service at a relatively low price.
The Value Line Mutual Fund Survey
The Value Line Mutual Fund Survey is published once every three weeks and was introduced in 1993. It provides full-page profiles of about 700 mutual funds and condensed coverage of more than 1,250 funds. Every three weeks subscribers receive an updated issue, containing over 200 fund reports, plus a "Performance & Index" providing current rankings and performance figures for the full universe of more than 2,000 funds, as well as articles on investment trends and issues concerning mutual fund investors. Funds are ranked for both risk and overall risk-adjusted performance using strictly quantitative means. The Value Line Mutual Fund Survey also includes annual profiles and analyses on 100 of the nation's major fund families. Funds are ranked for both risk and overall risk-adjusted performance using strictly quantitative means. A large binder is provided to house the fund reports.
The Value Line No-Load Fund Advisor
The Value Line No-Load Fund Advisor is a 36-page monthly newsletter for investors who wish to manage their own portfolios of no- and low-load, open-end mutual funds. It was introduced in 1994. Each issue features 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 600 leading no-load and low-load funds.
The Value Line Special Situations Service
The Value Line Special Situations Service, published twice a month, concentrates on fast-growing, smaller companies whose stocks are perceived by VLP analysts as having exceptional appreciation potential. It was introduced in 1951.
The Value Line Daily Options Survey
The Value Line Daily Options Survey, a semi-monthly periodical service published 24 times a year, evaluates and ranks the expected performance of the most active options listed on United States exchanges (approximately 80,000)130,000). It was introduced in 1973. An electronic version of this publication, The Value Line Daily Options Survey (available over the Internet), was introduced during the latter part of fiscal 1995. An enhanced version was introduced in 2002. New featuresFeatures include an interactive database and a new spreadsheet.
The Value Line Convertibles Survey
The Value Line Convertibles Survey, a semi-monthly periodical service published 24 times a year, evaluates and ranks approximately 600660 convertible securities (bonds and preferred stocks) and approximately 80100 warrants for future market performance. It was introduced in 1972. The information is also available online.
Value Line Select
Value Line Select, a monthly publication, was first published in January 1998. As a stock recommendation service with an exclusive circulation, it focuses each month on one company that VLP analysts, economists and statisticians recommend as an investment. 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 proven to be popular among investors who want the same type of analysis provided in the full Investment Survey, but who don’t want or need coverage of the large number of companies contained in that publication. Readers also receive supplemental reports as well as a monthly Index, which includes updated statistics.
| 2. | Electronic and Internet Products: |
Value Line Publishing products and services are available from the Company’s Web site www.valueline.com. The site includes a multimedia section that features daily market reports and updates on stocks, options, mutual funds and convertibles as well as webcasting of daily analyst commentary and developments on companies in the news. In addition, the Company’s Web site includes tools to chart and filter stocks and mutual funds along with tools to build a portfolio, customize a report and receive Value Line Publishing reports.
2. Electronic Products:
Value Line Investment Analyzer
Value Line Investment Analyzer 3.0 on CD-ROM is a powerful menu-driven software program with fast filtering, ranking, reporting and graphing capabilities utilizing over 300350 data fields for about 8,000 stocks, industries and indices, including the 1,700 stocks covered in VLP’s benchmark publication, The Value Line Investment Survey. The product was introduced in June 1996. The current version1996 and permits users to update data from the Company’s Internet site (www.valueline.com).Internet.
Value Line Investment Analyzer 3.0 provides over 300 search350 data fields and more than 200 charting and graphing variables for comparative research. In addition to containing digital replicas of the entire Value Line Investment Survey, the Analyzer includes daily data updates through its seamless integration with the Value Line Web site (www.valueline.com).databases via a secure Internet connection. The software includes a portfolio module that lets users create and track their own stock portfolios and up to ten years of historical financial data for scrutinizing performance, risk, yield and yield.return.
Value Line Mutual Fund Survey for Windows®
Value Line Mutual Fund Survey for Windows®, a monthly CD-ROM product with weekly internet updates, is the electronic version of theThe Value Line Mutual Fund Survey. 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.
Windows is a registered trademark of Microsoft Corp. Value Line, Inc. and Microsoft Corp. are not affiliated companies.
Value Line DataFile
Value Line DataFile contains current and historic annual and quarterly financial records for about 8,500 active companies and over 5,000 companies that no longer exist in numerous industries, including air transport, industrial services, beverage, machinery, bank, insurance and finance, savings and loan associations, toys, and securities brokers. DataFile has over 400 annual and over 80 quarterly fields for each of the companies included in the database. DataFile is sold to the institutional market. Value Line DataFile II, which includes less historical data, is also available. This version complies with Microsoft Access format for small businesses. During fiscal 1997, Value LineVLP introduced the Value Line Mutual Fund DataFile. It covers about 13,000 mutual funds with up to 20 years of historical data which consists ofwith almost 200 data fields. VLP also offers an Estimates and Projections File, with year-ahead and three- to five-year estimates of financial performancedata and projections of stock-price ranges on companies covered in theThe Value Line Investment Survey, as well as a Convertible Securities File and custom services.
The Total Return Service
The Total Return Service is a customized data service. It was developed to help publicly traded companies meet the SEC's mandated executive-compensationstock performance disclosure requirements. The service consists of a line graph comparing the total return of a public company's stock over the last five years to a publishedbroad market equity market index and a published or constructed industry index.
3.The Value Line Internet:
Most Value Line products and services are available from the Company’s Web site Research Centerwww.valueline.com. The site includes a multimedia section that features daily market reports and updates on stocks, options, mutual funds and convertibles as well as webcasting of daily analyst
commentary and developments on companies in the news. In addition, the Company’s Web site includes tools to chart and filter stocks and mutual funds along with tools to build a portfolio, customize a report and receive Value Line reports.
The Value Line Research Center, an internet-only service, includesprovides on-line access to certain of the Company’sVLP’s leading publications covering stocks, mutual funds, and options and convertible securities as well as special situation stocks. This service includes full subscriptions to The Value Line Investment Survey, The Value Line Mutual Fund Survey, The Value Line Daily Options Survey, The Value Line Investment Survey - Small and Mid-Cap Edition, The Value Line Convertibles Survey, The Value Line Special Situations Service and Value Line ETF Survey.
B. The Company has licensed for fees certain trademarks and proprietary information for a series of products, including unit investment trusts, closed-end funds and exchange traded funds. The sponsors of these products typically act as wholesalers and distribute the products by syndicating them through an extensive network of national and regional brokerage firms. Such a broad marketing network is assembled and re-assembled each time that a product is introduced into the retail marketplace by a licensed product sponsor.
The sponsors of these various products will typically license 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 licensing fee from each of the product sponsors/managers primarily based upon the market value of assets invested in each product’s portfolio. Since these fees are based on the daily market value of the respective portfolio, the payments to Value Line, which are typically received on a quarterly basis, will fluctuate.
Total assets within the series of licensing products at April 30, 2006, were:
| | (in thousands) | |
| | | |
Unit Investment Trusts | | $ | 4,200,000 | |
Closed-end Funds | | $ | 1,100,000 | |
Exchange Traded Fund | | $ | 160,000 | |
Other | | $ | 800,000 | |
| | $ | 6,260,000 | |
The closed end funds are listed on the American Stock Exchange and trade under the symbols FVL, FVD and FVI. The exchange traded fund is listed on the American Stock Exchange and trades under the symbol PIV.
As of April 30, 2005,2006, the Company was the investment adviser for 14 mutual funds registered under the Investment Company Act of 1940. Value Line Securities, Inc., a wholly owned subsidiary of the Company, acts as principal underwriter and distributor for the Value Line Funds. State Street Bank and Trust Company, an unaffiliated entity, acts as 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 unaffiliated entity associated with State Street Bank and Trust Company.Services.
Total net assets of the Value Line Funds at April 30, 2005,2006, were:
| | | | |
| | (in thousands) | | | | |
| | | | | (in thousands) | |
The Value Line Fund, Inc. | | $ | 192,580 | | | $ | 233,250 | |
Value Line Income and Growth Fund, Inc. | | | 230,108 | | | | 340,626 | |
The Value Line Special Situations Fund, Inc. | | | 367,407 | | |
Value Line Leveraged Growth Investors, Inc. | | | 279,220 | | |
The Value Line Premier Growth Fund, Inc. | | | | 494,566 | |
Value Line Larger Companies Fund, Inc. | | | | 327,697 | |
The Value Line Cash Fund, Inc. | | | 159,814 | | | | 166,142 | |
Value Line U.S. Government Securities Fund, Inc. | | | 114,313 | | | | 100,158 | |
Value Line Centurion Fund, Inc. | | | 306,180 | | | | 343,631 | |
The Value Line Tax Exempt Fund, Inc. | | | 135,444 | | | | 112,617 | |
Value Line Convertible Fund, Inc. | | | 38,670 | | | | 36,505 | |
Value Line Aggressive Income Trust | | | 47,756 | | | | 41,328 | |
Value Line New York Tax Exempt Trust | | | 25,650 | | | | 23,414 | |
Value Line Strategic Asset Management Trust | | | 712,537 | | | | 711,438 | |
Value Line Emerging Opportunities Fund, Inc. | | | 394,635 | | | | 695,795 | |
Value Line Asset Allocation Fund, Inc. | | | 123,668 | | | | 143,288 | |
| | $ | 3,127,982 | | | $ | 3,770,455 | |
Advisory fee rates vary among the funds and may be subject to certain limitations. Each mutual fund may use "Value Line" in its name only so long as the Company acts as its investment adviser.
Value Line Asset Management ("VLAM"), a division of the Company, manages pension funds and institutional and individual portfolios. VLAM has investment advisory agreements with its clients, which call for payments to the Company calculated on the basis of the market value of the assets under management. VLAM engages third party solicitors who are paid ongoing fees based on the market value of assets raised by their efforts.
C. Wholly-Owned Operating Subsidiaries.
1. Vanderbilt Advertising Agency, Inc.:Value Line Arithmetic Composite and Value Line Geometric Composite
Value Line Publishing publishes the Value Line Arithmetic Composite and the Value Line Geometric Composite, daily indices of the stock market performance of the approximately 1,700 common stocks contained in The Value Line Investment Survey. The calculation of both indices is done by a third party. VLP receives fees in connection with these activities.
D. | Wholly-Owned Operating Subsidiaries. |
| 1. | Vanderbilt Advertising Agency, Inc.: |
Vanderbilt Advertising Agency, Inc. ("Vanderbilt") places advertising for the Company's publications, investment advisory services, and mutual funds. Commission income generated by Vanderbilt serves to reduce the Company'sVLP’s advertising expenses.
2. Compupower Corporation:-7-
| 2. | Compupower Corporation: |
Compupower provides computerized subscription fulfillment services for the Company as well asand subscriber relations services for CompanyVLP publications. Additionally, Compupower also provides microfiche and imaging services to the Company and its affiliates.
3. | 3. | Value Line Securities, Inc.: |
Value Line Securities, Inc. ("VLS") is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. VLS acts as the underwriter and distributor of the Value Line Funds with the exception of the Strategic Asset Management and Centurion Funds, which are available through Guardian Insurance Company. Shares of the Value Line Funds are sold to the public without a sales charge (i.e., on a "no-load" basis). VLS receives service and distribution fees, pursuant to SEC rule 12b-1, from certain Value Line Funds, which are used to offset marketing and distribution costs for these funds. During certain periods prior to December 2004, VLS earned brokerage commission income on securities transactions executed by VLS on behalf of the funds that were cleared on a fully disclosed basis through non-affiliated brokers who received a portion of the gross commission. Pending a review of effecting trades for the Value Line Funds, VLS in November 2004 suspended effectuationexecution of trades through VLS for any of the Value Line Funds.
4. | 4. | Value Line Distribution Center, Inc.: |
Value Line Distribution Center, Inc. (“VLDC”) primarily handles all of the mailings of the publications to the Company’sVLP’s subscribers. Additionally, VLDC provides office space for the Compupower Corporation’s subscriber relations and data processing departments.departments, and provides a disaster recovery site for the New York operations.
D. Other Businesses.
The Company publishes the Value Line Arithmetic Composite and the Value Line Geometric Composite, daily indices of the stock market performance of the approximately 1,700 common stocks contained in The Value Line Investment Survey. The calculation of both indices is done by a third party. The Company receives fees in connection with these activities.
Licensing Business: The Company has licensed for a fee certain trademarks and proprietary information for a series of unit investment trusts and closed-end fund products.
I. Closed -End Fund Licensed Product Offerings | | Assets | |
| | | |
A. First Trust Value Line 100 Closed-End Trust | | $ | 305,000,000 | |
| | | | |
B. First Trust Value Line Dividend Closed-End Trust | | $ | 530,000,000 | |
| | | | |
C. First Trust Value Line & Ibbotson Equity Allocation Fund | | $ | 150,000,000 | |
| | | | |
II. Other Investment Products Including Unit Investment Trusts | | $ | 900,000,000 | |
Value Line collects a licensing fee from each of the UIT’s and the closed-end funds primarily based upon the market value of assets invested in each portfolio.
From time to time, the Company invests in certain of the Value Line Funds, fixed income government obligations and other marketable securities.
At April 30, 2005,2006, the Company and its subsidiaries employed 240228 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 covering stocks may not own stocks they cover. The Company has imposedadopted rules upon itself requiring monthly reports of securities transactions by employees for their respective accounts and restricting trading in various types of securities in order to avoid possible conflicts of interest.
G. G. | 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 119 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, | | | | | April 30, | |
| | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| | | | (in thousands) | | | | | (in thousands) | |
Investment Periodicals | | | | | | | | |
& Related Publications | | $ | 14,871 | | $ | 14,592 | | $ | 18,648 | | |
Investment Periodicals, Related | | | | | | | | |
Publications and Licensing | | | $ | 14,861 | | $ | 14,871 | | $ | 14,592 | |
Investment Management | | | 44,409 | | | 74,786 | | | 227,786 | | | | 81,762 | | | 44,409 | | | 74,786 | |
Corporate Assets(1) | | | 39,585 | | | 177,546 | | | 380 | | |
Corporate Assets(1) | | | | 22,591 | | | 39,585 | | | 177,546 | |
| | $ | 98,865 | | $ | 266,924 | | $ | 246,814 | | | $ | 119,214 | | $ | 98,865 | | $ | 266,924 | |
| | | | | | | | | | | |
(1) | Corporate Assets increased to $177,546,000 at April 30, 2004 in preparation for payment in May 2004 of the Company’s ordinary dividend of $.25 per share and a special dividend declared by the Board of Directors during April 2004 of $17.50 per share. |
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 CompanyVLP believes that it is one of the world'snation’s largest independent securities research organizations and that it publishes one of the world'snation's largest investment periodical services in terms of number of subscriptions, annual revenues and number of equity research analysts.
I. Executive Officers.I. | Executive Officers of the Registrant. |
The following table lists the names, ages (at June 9, 2005)30, 2006), 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. EachExcept 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 |
| | | | |
Jean Bernhard Buttner | | 7071 | | Chairman of the Board, President and Chief Executive Officer of the Company and AB&Co. Chairman of the Board and President of each of the Value Line Funds. |
| | | | |
Samuel Eisenstadt | | 8284 | | Senior Vice President and Research Chairman. |
| | | | |
Howard A. Brecher | | 52 | | Vice President and Secretary; Assistant Treasurer and Assistant Secretary of each of the Value Line Funds since 2005; Vice President, Secretary, Treasurer and General Counsel of AB&Co. |
| | | | |
David T. Henigson | | 4748 | | Vice President; Director of Compliance;Chief Compliance Officer; Vice President, Secretary, Treasurer and Chief Compliance Officer of each of the Value Line Funds; Vice President of AB&Co. |
| | | | |
Howard A. Brecher | | 51 | | Vice President and Secretary; Vice President, Secretary, Treasurer and General Counsel of AB&Co. |
| | | | |
Stephen R. Anastasio | | 4647 | | Treasurer of the Company and each of the Value Line Funds since September 2005; Chief Financial Officer since 2003;from 2003 to September 2005; Corporate Controller.Controller until 2003. |
| | | | |
Mitchell E. Appel | | 3435 | | Chief Financial Officer since September 2005; Treasurer sincefrom June 2005.to September 2005; Chief Financial Officer, Circle Trust Company (Januaryfrom January 2003 -to May 2005),2005; Vice President - Finance, Orbitex Financial Services Group and Treasurer of Orbitex Group of Funds from 2000 - 2002 . |
| | | | to 2002. |
WEB SITE ACCESS TO SEC REPORTS
The Company’s Web 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 free of charge on the Financial Info page of the Company’s Web site as soon as reasonably practicable after the reports are filed electronically with the Securities and Exchange Commission. Company filings are also available on the SEC Web 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.
The Company and its subsidiaries are dependent on key personnel.
The Company and its subsidiaries rely on the efforts of its officers and professional staff. Its future success relies upon its ability to retain and recruit qualified professionals and executives. The loss of the services of key personnel could have an adverse effect on the Company because it could jeopardize its performance.
If the Company does not maintain subscription revenue, its operating results could suffer.
A substantial portion of the Company’s revenue is generated from subscriptions including print and electronic. VLP’s trial and full term subscriptions are 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. Licensing agreements are based on market interest in the respective proprietary information. If the sales of the Company’s publications or proprietary information decline, its operating results could suffer.
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, subscriptions, and licensing services which could cause material changes in the Company’s operating results.
The Company’s assets under management, which impact revenue, are subject to significant 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 adviser 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 generally would reduce fee income. A 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 generally assists retention and growth of assets, resulting in additional revenues. Conversely, poor performance tends to result in decreased sales and increased redemptions with corresponding decreases in revenues to the Company. Poor performance could, therefore, have a material 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 under which these fees are paid. If any of these contracts are terminated, not renewed, or amended to reduce fees, the Company’s financial results may be adversely affected.
Value Line, Inc. is in the highly competitive 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 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. 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 our 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 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 restraint in marketing for certain funds and other investment products offered by the Company. Value Line, Inc. 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. Value Line Securities, Inc. is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. These laws and regulations generally grant broad administrative powers to regulatory agencies and bodies such as the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. If these agencies and bodies believe that the Company and its subsidiaries have failed to comply with these laws and regulations, these agencies and bodies have the power to impose sanctions. The Company, like other companies, can also face lawsuits by private parties and the Company along with its directors and officers have 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. An adverse resolution of any regulatory proceeding or lawsuit against the Company or its subsidiaries could result in substantial costs or reputational harm to the Company and its subsidiaries, and have a material adverse effect on the business and operations of the Company.
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 have a material adverse effect on the Company’s business.
Item 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
Item 2. PROPERTIES.
On June 4, 1993, the Company entered into a lease agreement for approximately 77,000 square feet that provided for the relocation of its office space to 220 East 42nd Street, New York, New York. On September 14, 2000, the Company amended its New York lease for office space and returned to the landlord 6,049 sq. ft. of excess capacity. On January 10, 2006, the Company amended its NY lease for office space and returned to the landlord 10,667 sq. ft. of additional excess capacity. The Company now leases approximately 71,00060,000 square feet of office space at 220 East 42nd Street in New York. The lease expires in May, 2008, subject to an option for the Company to extend the term for five years at a market rental rate. During January 1996, a subsidiary of the Company purchased for cash ana warehouse facility with approximately 85,000 square feet warehouse facility for $4,100,000. That facility consolidated into a single location the distribution operations for the various Company publications and the fulfillment operations of Compupower Corporation. The remaining building capacity provides warehouse space, a disaster recovery site and is available for future business expansion. 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 September 17, 2003 the Company commenced an action in New York Supreme Court, seeking damages in an unspecified amount, against a small mutual fund company pertaining to a contemplated transaction. The Company was countersued for alleged damages in excess of $5,000,000. The action was settled in November 2004 without a material adverse effect on the Company. A related entity of the defendant in the New York action brought suit against the Company and certain Directors in Federal Court in Texas in March, 2004 based on the same transaction. On the Company’s motion, that action has been transferred from Texas to New York. On March 2, 2006 the Federal Judge in New York granted the Company’s motion dismissing three causes of action. The court allowed one cause of action to continue at this time.
By letter dated June 15, 2005, the staff of the Securities and& Exchange Commission requestedinformed the Company as part ofthat it was conducting a preliminary inquiry to provideinquiry. Thereafter, the staff has requested documents relatingand information related to, among other things, trades for the Company'sCompany’s and affiliates’ proprietary accounts, and the effectuation and execution of trades through VLS for the Value Line Funds.Funds and the fees collected by VLS from the Value Line Funds pursuant to a Service and Distribution Plan. The Company intends to cooperateand its subsidiaries are cooperating with the preliminary inquiry.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholdersshareholders during the fourth quarter of the fiscal year ended April 30, 2005.
2006.
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 over-the-counter market and is quoted in the Nasdaq National Market System.NASDAQ Global Market™. The approximate number of record holders of the Registrant's Common Stock at April 30, 20052006 was 61.57. Over-the-counter price quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The range of the bid and asked quotations and the dividends paid on these shares during the past two fiscal years were as follows:
| | | | | | | | | | Dividend | |
| | High | | Low | | Declared | |
Quarter Ended | | Bid | | Asked | | Bid | | Asked | | Per Share | |
| | | | | | | | | | | |
July 31, 2004(1) | | $ | 64.260 | | $ | 69.500 | | $ | 29.500 | | $ | 31.320 | | $ | .25 | |
October 31, 2004 | | $ | 38.110 | | $ | 39.480 | | $ | 32.960 | | $ | 35.530 | | $ | .25 | |
January 31, 2005 | | $ | 41.760 | | $ | 41.760 | | $ | 35.950 | | $ | 35.950 | | $ | .25 | |
April 30, 2005 | | $ | 41.500 | | $ | 42.500 | | $ | 38.500 | | $ | 38.750 | | $ | .25 | |
| | | | | | | | | | | | | | | | |
July 31, 2005 | | $ | 39.500 | | $ | 40.020 | | $ | 30.570 | | $ | 34.000 | | $ | .25 | |
October 31, 2005 | | $ | 39.500 | | $ | 40.000 | | $ | 36.010 | | $ | 37.060 | | $ | .25 | |
January 31, 2006 | | $ | 41.480 | | $ | 43.040 | | $ | 33.510 | | $ | 34.000 | | $ | .25 | |
April 30, 2006 | | $ | 41.180 | | $ | 41.960 | | $ | 33.110 | | $ | 33.360 | | $ | .25 | |
| | | | | | | | | | | | | | | | |
(1) | The high stock price in quarter ended July 31, 2004 reflects the stock price prior to payment of the special dividend declared by the Board of Directors during April 2004 of $17.50 per share, representing a total of $174,678,000. |
| | High | | Low | | Dividend | |
Quarter Ended | | Bid | | Asked | | Bid | | Asked | | Declared Per Share | |
| | | | | | | | | | | |
July 31, 2004 | | $ | 64.260 | | $ | 69.500 | | $ | 29.500 | | $ | 31.320 | | $ | 25 | |
October 31, 2004 | | $ | 38.110 | | $ | 39.480 | | $ | 32.960 | | $ | 35.530 | | $ | .25 | |
January 31, 2005 | | $ | 41.760 | | $ | 41.760 | | $ | 35.950 | | $ | 35.950 | | $ | 25 | |
April 30, 2005 | | $ | 41.500 | | $ | 42.500 | | $ | 38.500 | | $ | 38.750 | | $ | .25 | |
| | | | | | | | | | | | | | | | |
July 31, 2003 | | $ | 54.7900 | | $ | 55.7700 | | $ | 45.6600 | | $ | 46.0000 | | $ | .25 | |
October 31, 2003 | | $ | 50.1600 | | $ | 51.5000 | | $ | 47.6900 | | $ | 48.1000 | | $ | .25 | |
January 31, 2004 | | $ | 50.8100 | | $ | 50.9900 | | $ | 48.1000 | | $ | 49.0000 | | $ | .25 | |
April 30, 2004 | | $ | 66.5200 | | $ | 74.2000 | | $ | 48.1000 | | $ | 48.6000 | | $ | 17.75 | |
Item 5(c). PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
ISSUER PURCHASES OF EQUITY SECURITIES
| ISSUER PURCHASES OF EQUITY SECURITIES
| |
| | | |
Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid Per Share (or Unit) | (c) (c) Total Number of
Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) (d) Maximum Number
(or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
February 1, 2005 2006 through
February 28, 2005 2006 | — ----- | — ----- | — ----- | — ----- |
March 1, 2005 2006 through March 31, 2005 2006 | — ----- | — ----- | — ----- | — ----- |
April 1, 2005 2006 through April 30, 2005 2006 | —-----
| — ----- | — ----- | — ----- |
Total | —----- | —----- | —----- | —-----
|
There were no purchases of the Company’s equity securities by the Company or any affiliated purchaser during the fiscal quarter ended April 30, 2005.2006. All purchases in prior periods were made by Arnold Bernhard & Co., Inc., an affiliate of the issuer, in open-market transactions pursuant to public announcements and disclosure.
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, | |
| | | | | | | | | | | |
| | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | |
| | | | (in thousands, except per share amounts) | |
| | | | | |
Revenues: | | | | | | | | | | | |
| | | | | | | | | | | |
| | $ | 52,713 | | $ | 52,497 | | $ | 52,469 | | $ | 53,114 | | $ | 56,042 | |
| | | | | | | | | | | | | | | | |
Investment management fees and services | | $ | 31,765 | | $ | 32,773 | | $ | 29,600 | | $ | 34,329 | | $ | 42,349 | |
| | | | | | | | | | | | | | | | |
Total revenues | | $ | 84,478 | | $ | 85,270 | | $ | 82,069 | | $ | 87,443 | | $ | 98,391 | |
| | | | | | | | | | | | | | | | |
Income from operations | | $ | 27,084 | | $ | 24,739 | | $ | 24,095 | | $ | 29,186 | | $ | 37,811 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 21,318 | | $ | 20,350 | | $ | 19,987 | | $ | 20,323 | | $ | 24,091 | |
| | | | | | | | | | | | | | | | |
Earnings per share, basic and fully diluted | | $ | 2.14 | | $ | 2.04 | | $ | 2.00 | | $ | 2.04 | | $ | 2.41 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 98,865 | | $ | 266,924 | | $ | 246,814 | | $ | 268,735 | | $ | 270,992 | |
| | | | | | | | | | | | | | | | |
Cash dividends declared per share | | $ | 1.00 | | $ | 18.50 | | $ | 1.00 | | $ | 1.00 | | $ | 1.00 | |
| | Years ended April 30, | |
| | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
| | (in thousands, except per share amounts) | |
| | | | | | | | | | | |
Revenues: | | | | | | | | | | | |
| | | | | | | | | | | |
Investment periodicals and related publications | | $ | 47,703 | | $ | 50,172 | | $ | 51,360 | | $ | 52,055 | | $ | 52,732 | |
| | | | | | | | | | | | | | | | |
Licensing Fees1 | | $ | 5,016 | | $ | 2,541 | | $ | 1,137 | | $ | 414 | | $ | 382 | |
| | | | | | | | | | | | | | | | |
Investment management fees and services | | $ | 32,467 | | $ | 31,765 | | $ | 32,773 | | $ | 29,600 | | $ | 34,329 | |
Total revenues | | $ | 85,186 | | $ | 84,478 | | $ | 85,270 | | $ | 82,069 | | $ | 87,443 | |
| | | | | | | | | | | | | | | | |
Income from operations | | $ | 35,180 | | $ | 27,084 | | $ | 24,739 | | $ | 24,095 | | $ | 29,186 | |
Net income | | $ | 23,439 | | $ | 21,318 | | $ | 20,350 | | $ | 19,987 | | $ | 20,323 | |
| | | | | | | | | | | | | | | | |
Earnings per share, basic and fully diluted | | $ | 2.35 | | $ | 2.14 | | $ | 2.04 | | $ | 2.00 | | $ | 2.04 | |
| | | | | | | | | | | | | | | | |
Total assets2 | | $ | 119,214 | | $ | 98,865 | | $ | 266,924 | | $ | 246,814 | | $ | 268,735 | |
| | | | | | | | | | | | | | | | |
Cash dividends declared per share | | $ | 1.00 | | $ | 1.00 | | $ | 18.50 | | $ | 1.00 | | $ | 1.00 | |
| | | | | | | | | | | | | | | | |
1 | Licensing fees are generated by third parties that pay the Company a fee for use of the Company’s proprietary information and trademarks that are within the periodicals and related publications business segment. |
2 | The change in assets from 2004 to 2005 reflects the special dividend declared by the Board of Directors in April 2004 of $174,678,000. |
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Fiscal 2006
Results of Operations
Net income for the twelve months ended April 30, 2006 of $23,439,000 or $2.35 per share was $2,121,000 or 10% above net income of $21,318,000 or $2.14 per share in fiscal year 2005. Net income of $5,712,000 for the fourth quarter ended April 30, 2006 was 16% higher than net income of $4,922,000 for the last quarter of fiscal year 2005. Operating income of $35,180,000 for the twelve months ended April 30, 2006 was $8,096,000 above operating income of $27,084,000 last fiscal year, a 30% increase. Operating income of $9,510,000 for the three months ended April 30, 2006 was 11% higher than operating income of $8,534,000 for the comparable period of the last fiscal year. The Company’s income from securities transactions of $3,869,000 was 53% below last year’s for the twelve months ended April 30, 2006. Income from securities transactions of $298,000 for the last quarter of fiscal 2006 was 22% above income from securities transactions of $245,000 for the three months ended April 30, 2005. Shareholders’ equity of $61,935,000 at April 30, 2006 was 40% higher than shareholders’ equity of $44,143,000 at April 30, 2005.
Subscription revenues of $47,703,000 for the twelve months ended April 30, 2006 were 5% below subscription revenues of $50,172,000 for the prior fiscal year. Electronic publications revenues of $10,947,000 were up $17,000 compared to $10,930,000 for the prior fiscal year. Within electronic publications revenues are revenues generated by institutional subscribers and retail subscribers. Institutional revenues increased $761,000 or 27%, while revenues from retail subscribers were down $744,000 or 9%. Print subscription revenues of $36,756,000 were down $2,486,000 or 6% compared to $39,242,000 for the last fiscal year. At fiscal year end 2006, unearned revenue was $37,500,000 compared to $40,022,000 in the previous year. The decrease is a result of lower orders received in fiscal year 2006 due to less frequent direct marketing and advertising campaigns than the previous year. Licensing fees for the twelve months ended April 30, 2006 of $5,016,000 were up $2,475,000 or 97% compared to $2,541,000 for the fiscal 2005.
Investment management fees and service revenues of $32,467,000 for the twelve months ended April 30, 2006 were up $702,000, or 2% above the prior fiscal year’s revenues of $31,765,000. Investment management fees and service revenues of $8,307,000 for the fourth quarter ended April 30, 2006 were 8% above the prior fiscal year’s revenues of $7,677,000. Beginning November 2004, VLS suspended its business of executing trades for any of the Value Line Funds, from which it had earned net commission revenues. The decline in brokerage revenues was mostly offset by higher investment advisory fees that resulted primarily from a 21% increase in the net assets of the Value Line Funds, which included fee waivers for certain of the Value Line Funds at April 30, 2006. Total mutual funds net assets as of April 30, 2006 were approximately $3.8 billion.
Operating expenses for the twelve months ended April 30, 2006 of $50,006,000 were 13% below expenses of $57,394,000 for the previous fiscal year. Total advertising and promotional expenses of $13,671,000 for the twelve months ended April 30, 2006 were 33% below the prior year’s expenses of $20,455,000. The decrease in advertising expenses resulted primarily from the reduction in the frequency of marketing campaigns in fiscal 2006 for the Company’s investment periodicals and media advertising for brand recognition. Salaries and employee benefit expenses of $19,025,000 for the twelve months ended April 30, 2006 were down 2% compared to expenses of $19,445,000 for the prior fiscal year. Production and distribution expenses for the twelve months ended April 30, 2006 of $7,073,000 were 18% below expenses of $8,589,000 for fiscal 2005. The decline in expenses for the twelve months of fiscal 2006 was primarily due to lower paper, printing and distribution costs that resulted in part from a decrease in circulation of the print products. Office and administrative expenses for the first twelve months of fiscal 2006 of $10,237,000 were 15% higher than the prior fiscal year’s expenses of $8,905,000. The increase in administrative expenses was primarily due to an increase in professional fees and the additional costs associated with outsourcing certain of the mutual fund administration functions.
For the twelve months ended April 30, 2006, the Company’s income from securities transactions of $3,869,000 was 53% below securities transactions income of $8,278,000 last fiscal year. Income from securities transactions for the twelve months ended April 30, 2006 included dividend and interest income of $1,844,000. Realized capital gains, net of unrealized capital losses, during the twelve months of fiscal 2006 were $2,212,000, of which $2,355,000 represented distributions from the Value Line Mutual Funds and $75,000 from an installment sale of an investment in a privately held company. The income from securities transactions for the twelve months of fiscal 2006 compares to dividend and interest income of $602,000 and capital gains of $7,676,000 from sales of securities included in the Company’s trading and available for sale portfolios included in the twelve months ended April 30, 2005. The prior fiscal year included capital gains that resulted from partial sales of the Company’s equity securities in preparation for payment of a special dividend of $17.50 per common share during the first quarter of fiscal 2005 and redeployment of the remaining proceeds in fixed income government obligations. Capital gains for the twelve months of fiscal 2005 also included $433,000 from the initial proceeds from the installment sale of an investment in a privately held company.
Liquidity and Capital Resources
The Company had working capital as of April 30, 2006 of $63,823,000. Cash and short-term securities as of April 30, 2006 totaled $81,246,000.
The Company’s cash flow from operations of $18,919,000 for the twelve months ended April 30, 2006 was 48% lower than fiscal 2005’s cash flow of $36,590,000. The decrease in cash flow from operations was primarily due to the liquidation of the Company’s trading securities portfolio in fiscal year 2005. Net cash inflows of $422,000 from investing activities during the twelve months of fiscal 2006 compared to net cash outflows of $24,071,000 last year, which primarily resulted from purchases of fixed income securities in fiscal 2005. Cash outflows from financing activities of $9,981,000 during fiscal year 2006 represent the payment of the Company’s quarterly dividend of $0.25 per share for each quarter. Cash outflows from financing activities for fiscal year 2005 of $184,656,000 reflect the Company’s quarterly dividends of $.25 per share for each quarter as well as a special $17.50 dividend paid to all shareholders on May 19, 2004.
From time to time, AB&Co., the Company’s controlling shareholder, has purchased additional shares of Value Line, Inc. in the market when and as AB&Co. has determined it to be appropriate. As stated several times in the past, the public is reminded that AB&Co. may make additional purchases from time to time in the future.
Management believes that the Company’s cash and other liquid asset resources used in its business together with the future cash flows from operations will be sufficient to finance current and forecasted operations. Management anticipates no borrowing for fiscal year 2007.
Fiscal 2005
Operating Results
Net income for the twelve months ended April 30, 2005 of $21,318,000 or $2.14 per share was 5% above net income of $20,350,000 or $2.04 per share in fiscal 2004. Operating income of $27,084,000 for the twelve months ended April 30, 2005 was 9% above operating income of $24,739,000 for the same period of the last fiscal year. Operating income of $8,534,000 for the three months ended April 30, 2005 was 17% higher than operating income of $7,300,000 for the comparable period of the last fiscal year. Retained Earnings of $30,798,000 at April 30, 2005 were 58% higher than Retained Earnings of $19,459,000 at April 30, 2004.
Subscription revenues of $52,713,000 for the twelve months ended April 30, 2005 were level with subscription revenues for the same period of the prior fiscal year. Revenues from all electronic publications were up 9% over the previous year while licensing fees were up 123% for the twelve months ended April 30, 2005. Revenues from all print products were down 5% compared to the last fiscal year’s level. Investment management fees and service revenues of $31,765,000 for the twelve months ended April 30, 2005 were 3% below the prior fiscal year’s revenues of $32,773,000, primarily because beginning November 2004, VLS suspended its business of effecting trades for any of the Value Line funds,Funds, from which it had earned net commission revenues.
Operating expenses for the twelve months ended April 30, 2005 of $57,394,000 were 5% below the last fiscal year’s expenses of $60,531,000. Total advertising and promotional expenses of $20,455,000 were 6% below the prior year’s expenses of $21,821,000. The decrease in advertising expenses resulted primarily from the postponement of direct mail expenses until fiscal 2006. Salaries and employee benefit expenses of $19,445,000 were 6% below expenses of $20,764,000 recorded in the prior fiscal year as a result of staff reductions in the mutual fund product and asset management divisions. Production and distribution costs for the twelve months ended April 30, 2005 of $8,589,000 were 8% below expenses of $9,300,000 at April 30, 2004. The decline in expenses was primarily due to lower paper, printing and distribution costs that resulted in part from a decrease in circulation toof the print and electronic versions of our products. Office and administrative expenses of $8,905,000 were 3% higher than the prior fiscal year’s expenses of $8,646,000. The increase in administrative expenses was primarily due to an increase in professional fees including expenses to settle an action in the New York Supreme Court with a small mutual fund company relating to a proposed transaction and higher rent expenses resulting from scheduled lease escalations. The increases in administrative expenses were offset by lower depreciation of fixed assets and lower software licensing and hardware maintenance fees.
The Company’s income from securities transactions, net, of $8,278,000 for the twelve months ended April 30, 2005 was slightly above securities transactions income of $8,266,000 for the same period of the last fiscal year. Income from securities transactions, net, for the twelve months ended April 30, 2005 included dividend and interest income of $602,000 and capital gains of $7,676,000 from sales of equity securities from the Company’s short-term trading and
available for sale portfolios, which compares to dividend and interest income of $4,259,000 and capital gains of $4,017,000 from sales of securities from the Company’s short-term trading and available for sale portfolios for the same period of the last fiscal year. The lower dividend and interest income during fiscal 2005 was a result of sales of the Company’s fixed income securities during the latter part of fiscal 2004 in preparation for payment on May 19, 2004 of a special dividend of $17.50 per share paid to all common stockholders of record as of May 7, 2004.shareholders. Income from securities transactions, net, for the twelve months ended April 30, 2005 also includesincluded $433,000 from the initial proceeds from the installment sale of shares received under the terms ofan investment in a contract with a vendor.privately held company.
Liquidity and Capital Resources
The Company had working capital as of April 30, 2005 of $45,401,000 including cash$45,401,000. Cash and short-term securities at market valueas of April 30, 2005 totaled $82,245,000.
The Company’s cash flow from operations of $36,590,000 for the twelve months ended April 30, 2005 was 371% higher than fiscal 2004’s cash flow of $7,771,000. The rise in cash flow from operations was primarily due to the liquidation of the Company’s trading securities portfolio and higher net income. Net cash outflows of $24,071,000 from investing activities during the twelve months of fiscal 2005 primarily resulted from purchases of fixed income securities. Net cash inflows of $170,102,000 during fiscal 2004 resulted primarily from sales of fixed income securities in preparation for payment on May 19, 2004 of a special dividend in the amount of $174,678,000.
From time to time, AB&Co., the Company’s controlling shareholder, has purchased additional shares of Value Line, Inc. in the market when and as AB&Co. has determined it to be appropriate. As stated several times in the past, the public is reminded that AB&Co. may make additional purchases from time to time in the future.
Management believes that the Company’s cash and other liquid asset resources used in its business together with the future cash flows from operations will be sufficient to finance current and forecasted operations. Management anticipates no borrowing for fiscal year 2006.
Fiscal 2004
Operating Results
Net income for the twelve months ended April 30, 2004 of $20,350,000 or $2.04 per share was 2% above net income of $19,987,000 or $2.00 per share for the same period in fiscal 2003. Operating income of $24,739,000 for the twelve months ended April 30, 2004 was 3% above operating income of $24,095,000 for the same period of the last fiscal year. Operating income of $7,300,000 for the three months ended April 30, 2004 was 7% higher than operating income of $6,843,000 for the comparable period of the last fiscal year. Income from securities transactions for the twelve months of fiscal 2004 was 25% above income from securities transactions for the same period of fiscal 2003. Revenues of $85,270,000 for the twelve months ended April 30, 2004 were 3% higher than revenues of $82,245,000 in the prior fiscal year. Revenues of $22,045,000 for the fourth quarter of fiscal 2004 were 11% above revenues of $20,201,000 for the three months ended April 30, 2003.
During fiscal 2004, the Company’s stock outperformed the major market indices. Value Line, Inc.’s. stock was up 34% for the twelve months ended April 30, 2004. In April 2004, the Board of Directors of the Company declared a distribution from its Retained Earnings in the form of a special dividend of $17.50 per share or $174,678,000 to all shareholders of record as of May 7, 2004. The purpose of the dividend was to return to all shareholders, in the form of cash, a significant portion of the earnings of the Company from its successful operations over the past number of years, at a time when shareholders can enjoy the present favorable tax rates on dividends. Despite this significant distribution, Value Line remains exceptionally strong financially with $35,298,000 of Shareholders’ Equity as of April 30, 2004 after declaration of the special dividend.
Subscription revenues of $52,497,000 for the twelve months ended April 30, 2004 were approximately equal to those for the same period of the prior fiscal year. Although total revenues from all print products for the twelve months ended April 30, 2004 were down 4% since the last fiscal year, revenues from all electronic publications were up over 12% in fiscal 2004. Subscription revenues of $13,728,000 for the fourth quarter of fiscal 2004 were 7% above revenues of $12,874,000 for the three months ended April 30, 2004. While total revenues from all print products for the three months ended April 30, 2004 were level with the revenues for the fourth quarter of fiscal 2003, revenues from all electronic publications were 11% above revenues for the comparable quarter of the last fiscal year. Investment management fees and services revenues of $32,773,000 for the twelve months ended April 30, 2004 were 10% above the prior fiscal year’s revenues of $29,776,000. Investment management fees and services revenues of $8,715,000 for the three months ended April 30, 2004 were 19% above the revenues of $7,327,000 recorded in the fourth quarter of fiscal 2003.
Operating expenses for the twelve months ended April 30, 2004 of $60,531,000 were 4% above the last year’s expenses of $58,150,000. Total advertising and promotional expenses of $21,821,000 were 7% above the prior year’s expenses of $20,418,000 primarily due to additional costs associated with marketing two of the Company’s equity mutual funds, increases in media advertising, higher fund supermarket fees related to sales of the Value Line mutual funds shares, and increased postage rates for direct mail. Successful direct mail campaigns resulted in an increase in subscription activity since April 2003 with total new full term subscription orders rising 11% from the level during the twelve months of the prior fiscal year. Salaries and employee benefit expenses of $20,764,000 were 4% above expenses of $19,938,000 recorded in the prior fiscal year. Production and distribution expenses for the twelve months ended April 30, 2004 of $9,300,000 were 3% below expenses of $9,576,000 for the twelve months ended April 30, 2003. The decline in expenses was primarily due to lower paper, printing and distribution costs that resulted from a migration in circulation from print to electronic versions of our products and management’s decision to discontinue issuing print copies of the Reference Library to trial subscribers of The ValueLine Investment Survey and The ValueLine Investment Survey Small and Mid-Cap Stock Edition. These decreases in production and distribution expenses were offset by higher commissions fee expenses in connection with the Company’s brokerage operation. Office and administrative expenses of $8,646,000 were 5% above the last year’s expenses of $8,218,000. The net increase in administrative expenses was primarily due to higher rent expenses resulting from scheduled lease increases, higher bank collection fees associated with an increase in the Company’s publishing credit card business, and increases in professional fees.
The Company’s securities portfolios produced a gain of $8,266,000 for the twelve months ended April 30, 2004 versus a gain of $6,626,000 for the same period of the last fiscal year. The Company’s trading portfolio produced a gain of $3,008,000 during the twelve months ended April 30, 2004 versus losses of $940,000 during the same period of the last fiscal year. Income from securities transactions for the twelve months ended
April 30, 2004 also included dividend and interest income of $4,259,000 and capital gains of $1,087,000 from sales of securities from the Company’s long-term portfolio of equity and fixed income securities. This compares to dividend and interest income of $4,361,000 and capital gains of $3,211,000 from sales of securities from the Company’s long-term portfolio for the same period of the last fiscal year.
Liquidity and Capital Resources
The Company had working capital as of April 30, 2004 of $36,699,000 including liquid assets consisting of cash and securities of $244,446,000, used in its business. Working capital has been reduced by the declaration of a $17.50 special dividend payable May 19, 2004 to all shareholders of record on May 7, 2004.
The Company’s cash flow from operations of $7,771,000 for the twelve months ended April 30, 2004 was $8,681,000 lower than fiscal 2003’s cash flow of $16,452,000. The decrease in cash flow from operations was primarily the result of additional investments in the Company’s short-term equity trading portfolio. The decrease was partially offset by a rise in cash flow from other operating activity primarily an 11% increase in total new full term subscription orders, an increase of 9% in the Company’s investment management business, and containment of expenses. Net cash inflows of $170,102,000 from investing activities during the twelve months of fiscal 2004 resulted primarily from sales of fixed income securities in preparation for payment on May 19, 2004 of a special dividend in the amount of $174,678,000. Net cash outflows of $113,702,000 for investing activities for the twelve months of fiscal 2003 were due largely to the Company’s decision last fiscal year to re-deploy its cash and equity holdings into Government debt obligations with higher effective yields.
From time to time, AB&Co., the Company’s controlling shareholder, has purchased additional shares of Value Line, Inc. in the market when and as AB&Co. has determined it to be appropriate. As stated several times in the past, the public is reminded that AB&Co. may make additional purchases from time to time in the future.
Management believes that the Company’s cash and other liquid asset resources used in its business together with the future cash flows from operations will be sufficient to finance current and forecasted operations. Management anticipates no borrowing for fiscal year 2005.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report contains statements (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:
| · | demand for and market acceptance of new and existing products; |
| · | renewals of subscriptions for the Company’s products; |
| · | adaptation of the Company’s products to new technologies; |
| · | 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; |
| · | competitive product and pricing pressures; |
| · | the impact of government regulation on the Company’s business and the uncertainties of litigation and regulatory initiatives and inquiries; and |
| · | other risks and uncertainties, including but not limited to those detailedthe risks described in Item 1A, "Risk Factors", and other risks and uncertainties from time to time in our SEC filings.time. |
Any forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
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 | | $ | 2,999 | | $ | 1,690 | | $ | 1,309 | | | — | | | | |
Purchase Obligations | | | | | | | | | | | | | | | | |
Other Long-term Obligations reflected on Balance Sheet | | $ | 37,726 | | $ | 28,224 | | $ | 9,502 | | | | | | | |
TOTAL | | $ | 40,725 | | $ | 29,914 | | $ | 10,811 | | | | | | | |
Contractual Obligations | | Total | | Less than 1 Year | | 1-3 years | | 3-5 years | | After 5 Years | |
Operating Lease Obligations | | $ | 4,745 | | $ | 1,788 | | $ | 2,957 | | | — | | | — | |
Purchase Obligations | | | — | | | — | | | — | | | — | | | — | |
Other Long-term Obligations reflected on Balance Sheet | | $ | 40,092 | | $ | 29,748 | | $ | 10,344 | | | — | | | — | |
TOTAL | | $ | 44,837 | | $ | 31,536 | | $ | 13,301 | | | — | | | — | |
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market Risk Disclosures
Value Line, Inc.’sThe Company’s Consolidated Balance Sheet includes a substantial amount of assets and liabilities whose fair values are subject to market risks. Value Line’sThe Company’s significant market risks are primarily associated with interest rates and equity prices. The following sections address the significant market risks associated with Value Line’sthe Company’s business activities.
Interest Rate Risk
Value Line’sThe Company’s management prefers to invest in highly liquid debt securities with extremely low credit risk. Value Line’s strategy is to acquire securities that are attractively priced in relation to the perceived credit risk. Management recognizes and accepts that losses may occur. To limit the price fluctuation in these securities from interest rate changes, Value Line’sthe Company’s management invests primarily in short-term obligations maturing in 1 to 5 years.
The fair values of Value Line’sthe Company’s fixed maturity investments will fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by prepayment options, relative values of alternative investments, and other general market conditions.
The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets that are subject to interest rate risk. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table. Dollars are in thousands.
| | | | Estimated Fair Value after | |
| | | | Hypothetical Change in Interest Rates | |
| | | | | | | | | |
| | | | | | (bp = basis points) | | | |
| | Fair | | 50bp | | 50bp | | 100bp | | 100bp | |
Fixed Income Securities | | Value | | increase | | decrease | | increase | | decrease | |
| | | | | | | | | | | |
As of April 30, 2005 | | | | | | | | | | | |
Investments in securities with fixed maturities | | $ | 39,065 | | $ | | | $ | 39,253 | | $ | 38,911 | | $ | 39,326 | |
| | | | | | | | | | | | | | | | |
As of April 30, 2004 | | | | | | | | | | | | | | | | |
Investments in securities with fixed maturities | | $ | 1 | | $ | 1 | | $ | 1 | | $ | 1 | | $ | 1 | |
During the last quarter of fiscal year 2004, the Company sold virtually all of its long-term holdings of fixed maturity investments and transferred the proceeds to cash in preparation for payment of a special $17.50 per share dividend, declared on April 23, 2004. The sale greatly | | Estimated Fair Value after | |
| | Hypothetical Change in Interest Rates | |
| | | | | | | | | | | |
| | (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, 2006 | | | | | | | | | | | |
Investments in securities with fixed maturities | | $ | 41,585 | | $ | 41,549 | | $ | 41,801 | | $ | 41,514 | | $ | 41,821 | |
| | | | | | | | | | | | | | | | |
As of April 30, 2005 | | | | | | | | | | | | | | | | |
Investments in securities with fixed maturities | | $ | 39,065 | | $ | 38,927 | | $ | 39,253 | | $ | 38,911 | | $ | 39,326 | |
reduced the Company’s exposure to risks associated with interest rate changes. Management regularly monitors the maturity structure of the Company’s investments in fixed maturity U.S. government debt obligations 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 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.
Value Line invests a significant level of its assets in equity securities, primarily the Value Line family of equity mutual funds. Each mutual fund invests in a variety of equity positions of various companies thereby diversifying Value Line’s risk. The Company’s objectives include maintenance of a greater weighting in large and mid capitalization companies in its equity portfolio to moderate price risk. Value Line has also utilized derivative financial instruments in the past to minimize market price risk, although no such derivative financial instruments were utilized during fiscal 20052006 and 2004.2005.
The table below summarizes Value Line’s equity price risks as of April 30, 20052006 and 20042005 and shows the effects of a hypothetical 30% increase and a 30% decrease in market prices as of those dates. The selected hypothetical changes do not reflect what could be considered the best or worst case scenarios. Dollars are in thousands.
| | | | | | | Estimated | | | |
| | | | | | | Fair Value after | | Hypothetical Percentage | |
| | | | Hypothetical | | Estimated Fair Value after Hypothetical | | Hypothetical Percentage Increase (Decrease) in | | | | | Hypothetical | | Hypothetical | | Increase (Decrease) in | |
Equity Securities | | Fair Value | | Price Change | | Change in Prices | | Shareholders’Equity | | | Fair Value | | Price Change | | Change in Prices | | Shareholders’ Equity | |
As of April 30, 2006 | | | $ | 46,644 | | | 30% increase | | $ | 60,637 | | | 14.69 | % |
| | | | | | | 30% decrease | | $ | 32,651 | | | (14.69 | )% |
| | | | | | | | | | | | | | |
As of April 30, 2005 | | $ | 37,209 | | | 30% increase | | $ | 48,372 | | | 25.3 | % | | $ | 37,209 | | | 30% increase | | $ | 48,372 | | | 16.44 | % |
| | | | | | 30% decrease | | $ | 26,046 | | | (25.3 | )% | | | | | | 30% decrease | | $ | 26,046 | | | (16.44 | )% |
| | | | | | | | | | | | | | |
As of April 30, 2004 | | $ | 46,356 | | | 30% increase | | $ | 60,259 | | | 39.4 | % | |
| | | | | | 30% decrease | | $ | 32,447 | | | (39.4 | )% | |
Although the absolute risk associated with equity price changes is not significantly different for the Company’s equity securities holdings at fiscal year end April 30, 2005 as compared to April 30, 2004, the percentage increase/decrease in shareholders’ equity has more dramatically changed as a result of the lower shareholders’ equity balance that resulted from the declaration of the special $17.50 special dividend during the quarter ended April 30, 2004.
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 Numbers |
| |
Report of independent accountants | 3032 |
Consolidated balance sheets--April 30, 20052006 and 20042005 | 3133 |
Consolidated statements of income and retained earnings | |
--years -- years ended April 30, 2006, 2005 2004 and 20032004 | 3234 |
Consolidated statements of cash flows | |
--years -- years ended April 30, 2006, 2005 2004 and 20032004 | 3335 |
Consolidated statement of changes in shareholders’ equity | |
--years -- years ended April 30, 2006, 2005 2004 and 20032004 | 3436 |
Notes to the consolidated financial statements | 3537 - 45 |
Supplementary schedules | 4846 - 47 |
| | Quarterly Results (Unaudited): (in thousands, except per share amounts) | |
| | | | | | | | | |
| | | | | | | | | |
2005, by Quarter - | | | | | | | |
First | | $ | 21,380 | | $ | 6,245 | | $ | 5,941 | | $ | 0.60 | |
Second | | | 20,922 | | | 5,868 | | | 5,798 | | | 0.58 | |
Third. | | | 21,058 | | | 6,437 | | | 4,657 | | | 0.46 | |
Fourth | | | 21,118 | | | 8,534 | | | 4,922 | | | 0.50 | |
Total | | $ | 84,478 | | $ | 27,084 | | $ | 21,318 | | $ | 2.14 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
2004, by Quarter - | | | | | | | | | |
First | | $ | 21,057 | | $ | 5,572 | | $ | 4,998 | | $ | 0.50 | |
Second | | | 20,670 | | | 5,827 | | | 5,525 | | | 0.55 | |
Third | | | 21,498 | | | 6,040 | | | 4,904 | | | 0.49 | |
Fourth | | | 22,045 | | | 7,300 | | | 4,923 | | | 0.50 | |
Total | | $ | | | $ | | | $ | | | $ | | |
2003, by Quarter - | | | | | | | | | |
First. | | $ | 20,505 | | $ | 4,975 | | $ | 3,000 | | $ | 0.30 | |
Second | | | 20,386 | | | 6,379 | | | 4,524 | | | 0.45 | |
Third | | | 21,153 | | | 5,898 | | | 5,671 | | | 0.57 | |
Fourth. | | | 20,025 | | | 6,843 | | | 6,792 | | | 0.68 | |
Total | | $ | 82,069 | | $ | 24,095 | | $ | 19,987 | | $ | 2.00 | |
Quarterly Results (Unaudited):
(in thousands, except per share amounts)
| | | | Income | | | | Earnings | |
| | Total | | From | | Net | | Per | |
| | Revenues | | Operations | | Income | | Share | |
| | | | | | | | | |
2006, by Quarter - | | | | | | | | | |
First | | $ | 20,874 | | $ | 9,163 | | $ | 5,648 | | $ | 0.57 | |
Second | | | 21,002 | | | 8,470 | | | 5,385 | | | 0.54 | |
Third | | | 21,582 | | | 8,037 | | | 6,694 | | | 0.67 | |
Fourth | | | 21,728 | | | 9,510 | | | 5,712 | | | 0.57 | |
Total | | $ | 85,186 | | $ | 35,180 | | $ | 23,439 | | $ | 2.35 | |
| | | | | | | | | | | | | |
2005, by Quarter - | | | | | | | | | | | | | |
First | | $ | 21,380 | | $ | 6,245 | | $ | 5,941 | | $ | 0.60 | |
Second | | | 20,922 | | | 5,868 | | | 5,798 | | | 0.58 | |
Third | | | 21,058 | | | 6,437 | | | 4,657 | | | 0.46 | |
Fourth | | | 21,118 | | | 8,534 | | | 4,922 | | | 0.50 | |
Total | | $ | 84,478 | | $ | 27,084 | | $ | 21,318 | | $ | 2.14 | |
| | | | | | | | | | | | | |
2004, by Quarter - | | | | | | | | | | | | | |
First | | $ | 21,057 | | $ | 5,572 | | $ | 4,998 | | $ | 0.50 | |
Second | | | 20,670 | | | 5,827 | | | 5,525 | | | 0.55 | |
Third | | | 21,498 | | | 6,040 | | | 4,904 | | | 0.49 | |
Fourth | | | 22,045 | | | 7,300 | | | 4,923 | | | 0.50 | |
Total | | $ | 85,270 | | $ | 24,739 | | $ | 20,350 | | $ | 2.04 | |
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 Chief Executive Officer and Chief Financial Officer 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, 2005,2006, as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. The Company’s Chief Executive Officer and Chief Financial Officer 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. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives would be met.
Based upon the controls evaluation performed, the Chief Executive Officer and Chief Financial Officer have concluded that as of April 30, 2005,2006, the Company's disclosure controls and procedures were effective to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
| (b) | Changes in Internal Controls. |
In the course of the evaluation of disclosure controls and procedures, the 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 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.
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, 2005.
2006.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Names of Directors, Age as of | | Director |
June 9, 200530, 2006 and Principal Occupation | | Since |
| | |
Jean Bernhard Buttner* (70)(71). Chairman of the Board, President, and Chief Executive Officer of the Company and Arnold Bernhard & Co., Inc. Chairman of the Board and President of each of the Value Line Funds. | | 1982 |
| | |
Harold Bernard, Jr. (74). Attorney-at-law. Retired Administrative Law Judge, National Labor Relations Board. Director of Arnold Bernhard & Co., Inc. Judge Bernard is a cousin of Jean Bernhard Buttner.
| | 1982 |
| | |
Samuel Eisenstadt (82)(84). Senior Vice President and Research Chairman of the Company. | | 1982 |
| | |
Herbert Pardes, MD (71)(72). President and CEO of New York- Presbyterian Hospital. | | 2000 |
| | |
Edward J. Shanahan (61)(62). President and Headmaster, Choate Rosemary Hall (boarding(boarding school); Director and Chairman, Foundation for Greater Opportunity (not-for-profit charter school)(independent educational foundation). | | 2004 |
| | |
Dr. Edgar A. Buttner (43). Postdoctoral Fellow, Research Associate, Harvard University since 2003; Research Associate and Instructor, McLean Hospital, 2002-2003; Postdoctoral Fellow, Massachusetts Institute of Technology, 1997- 2001; Director of Arnold Bernhard & Co., Inc. Dr. Buttner is the son of Jean Bernhard Buttner. | | 2003 |
| | |
Marion N. Ruth (71). President, Ruth Realty. | | 2005 |
| | |
Howard A. Brecher* (51)(52). Vice President and Secretary of the Company;Assistant Treasurer and Assistant Secretary of each of the Value Line Funds since 2005; Director, Vice President, Secretary, Treasurer and General Counsel of Arnold Bernhard & Co., Inc.; Assistant Treasurer and Secretary of each of the Value Line Funds since 2005. | | 1992 |
| | |
David T. Henigson* (47)(48). Vice President and DirectorChief Compliance Officer of Compliance of theCompany;the Company; Vice President, Secretary and TreasurerChief Compliance Officer of each of the Value Line Funds; Vice President and Director of Arnold Bernhard & Co., Inc. | | 1992 |
| | |
Edgar A. Buttner (42). Postdoctoral Fellow, Harvard University since 2003; Research Associate, McLean Hospital, 2002-2003; Postdoctoral Fellow, Massachusetts Institute of Technology, 1997-2001; Director of Arnold Bernhard & Co., Inc. Dr. Buttner is the son of Jean Bernhard Buttner. | | 2003 |
| | |
Marianne Asher (39). Private investor, graduate somatic counselor; Director of Arnold Bernhard & Co., Inc. Mrs. Asher is a daughter of Jean Bernhard Buttner. | | 2004 |
| | |
* Member of the Executive Committee
* | Member of the Executive Committee |
Except as noted, the directors have held their respective positions for at least five years.
(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: Harold Bernard, Jr., Dr. Herbert Pardes, and Edward J. Shanahan.Shanahan and Marion N. Ruth.
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.
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, and principal accounting officer.officer, and all other employees.
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 DirectorDirectors implemented after the disclosure of those procedures contained in the proxy statement for the Company's 20042005 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 our 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 2005.2006.
Item 11. EXECUTIVE COMPENSATION.
Information required by this item will be filed as an amendment to this Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of June 9, 200530, 2006 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 of Beneficial Owner | | Numberof Shares BeneficiallyOwned | | Percentage of Shares Beneficially Owned (1) | |
| | | | | |
Arnold Bernhard | | | 8,631,032 | | | 86.47 | % |
& Co., Inc.(1) | | | | | | | |
220 East 42nd Street | | | | | | | |
New York, NY 10017 | | | | | | | |
| | | | | | | |
(1) | Jean Bernhard Buttner, Chairman of the Board, President and Chief Executive Officer of the Company, owns all of the outstanding voting stock of Arnold Bernhard & Co., Inc. |
Name and Address | | Number of Shares | | Percentage of Shares | |
of Beneficial Owner | | Beneficially Owned | | Beneficially Owned1 | |
| | | | | |
Arnold Bernhard | | | 8,631,032 | | | 86.47 | % |
& Co., Inc.1 | | | | | | | |
220 East 42nd Street | | | | | | | |
New York, NY 10017 | | | | | | | |
The following table sets forth information as of June 9, 2005,30, 2006, 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 officers and directors as a group.
Name and Address | | Number of Shares | | Percentage of Shares | |
Name and Address of Beneficial Owner | | Beneficially Owned | | Number of Shares
BeneficiallyOwned | | Percentage of Shares Beneficially Owned (1)1 | |
Jean Bernhard Buttner | | | 100(1100 | ) | | * | |
Harold Bernard, Jr. | | | 450 | 1,2 | | * | |
Howard A. Brecher | | | 200 | | | * | |
Samuel Eisenstadt | | | 100 | | | * | |
David T. Henigson | | | 150 | | | * | |
Dr. Herbert Pardes | | | 100 | | | * | |
Edward J. Shanahan | | | -0-100 | | | * | |
Stephen R. Anastasio | | | 100 | | | * | |
Edgar A. Buttner | | | 100 | | | * | |
Marianne AsherMitchell E. Appel | | | -0-100 | | | * | |
Marion N. Ruth | | | 200 | | | * | |
All directors and executive officers as a group (10 (10 persons) | | | 1,300(11,250 | )1,2 | | * | |
| | | | | | | |
*Less than one percent
(1)* | Excludes 8,631,032 shares (86.47%Less than one percent |
1 | Jean Bernhard Buttner, Chairman of the outstanding shares) owned by Arnold Bernhard & Co., Inc. Jean Bernhard ButtnerBoard, President and Chief Executive Officer 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. |
2 | Excludes 8,631,032 shares (86.47% of the outstanding shares) owned by Arnold Bernhard & Co., Inc. |
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.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Arnold Bernhard & Co., Inc. (“AB&Co.”) utilizes the services of officers and employees of the Company to the extent necessary to conduct its business. The Company and Arnold Bernhard & Co.AB&Co., Inc. allocate costs for office space, equipment and supplies and support staff pursuant to a servicing and reimbursement arrangement.reimbursement. During the years ended April 30, 2006, 2005, 2004, and 2003,2004, the Company was reimbursed $918,000, $689,000 $489,000 and $527,000,$489,000, respectively, for payments it made on behalf of and services it provided to AB&Co..&Co. At April 30, 20052006 and 2004,2005, Receivable from affiliates included a Receivable from AB&Co. of $107,000$154,000 and $70,000,$107,000, respectively. For the years ended April 30, 2006, 2005, 2004, and 2003,2004, the Company made payments to AB&Co. for federal income tax amounting to $11,895,000, $12,115,000 and $10,650,000, and $9,500,000, respectively. At April 30, 2006 accrued taxes payable included a federal tax liability owed to AB&Co. in the amount of $449,000. At April 30, 2005 accrued taxes payable included a federal tax liability owed to the Company from AB&Co. in the amount of $145,000. At April 30, 2004 accrued taxes payable included a federal tax liability owed to Parent in the amount of $390,000. In addition, a tax-sharing arrangement allocates the tax liabilities of the two companies between them. The Company pays to Arnold Bernhard & Co.AB&Co., Inc. an amount equal to the Company's liability as if it filed separate tax returns.
The Company acts as investment adviser and manager for fourteen open-ended investment companies, the Value Line Family of Funds. The Company earns investment management fees based upon the average daily net asset values of the respective funds. Effective July 1, 2000, the Company receivedVLS receives service and distribution fees under rule 12b-1 of the Investment Company Act of 1940 from twelve of the fourteen mutual funds for which Value Line is the adviser. Effective September 18, 2002, the Company began receiving service and distribution fees under rule 12b-1 from the remaining two funds for which Value Line, Inc. is the adviser. The Company alsoFor certain periods prior to December 2004, VLS earned brokerage commission income on securities transactions executed by Value Line Securities, Inc.VLS on behalf of the funds that were cleared on a fully disclosed basis through non-affiliated brokers, who received a portion of the gross commission. Pending a review of effecting trades for the Value Line Funds, VLS in November 2004 suspended effectuationexecution of trades through VLS for any of the Value Line Funds. For the years ended April 30, 2006, 2005, 2004, and 2003,2004, investment management fees, service and distribution fees and brokerage commission income amounted to $31,278,000, $30,206,000 and $30,851,000, and $28,022,000, respectively.respectively, after fee waivers. These amounts include service and distribution fees of $9,915,000, $9,609,000 $9,638,000, and $7,968,000,$9,638,000, respectively. The related receivables from the funds for management advisory fees and service and distribution fees included in Receivable from affiliates were $2,406,000$2,751,000 and $2,448,000$2,406,000 at April 30, 2006 and 2005, and 2004, respectively.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit and Non-Audit Fees
For the fiscal yearyears ended April 30, 20052006 and 2004,2005, fees for services provided by Horowitz & Ullmann, P.C. were as follows:
| | 2006 | | 2005 | |
Audit fees | | $ | 134,695 | | $ | 129,450 | |
Audit-related fees | | $ | 24,190 | | $ | 51,790 | |
Tax fees | | $ | 76,960 | | $ | 89,430 | |
All other fees | | $ | 0 | | $ | 0 | |
| | 2005 | | 2004 | |
Audit fees | | $ | 129,450 | | $ | 125,625 | |
Audit-related fees | | $ | 51,790 | | $ | 31,360 | |
Tax fees | | $ | 89,430 | | $ | 93,840 | |
All other fees | | $ | 0 | | $ | 0 | |
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee of the Company's Board of Directors approves all services provided by the Horowitz & Ullmann, P.C. prior to the provision of those services and has not adopted any pre-approval policies and procedures.
Part IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) (a) | 1. Financial Statements |
See Part II Item 8.
Schedule XIII - Other Investments. (Reg. S-X, Article 5)
All other Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
| |
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 Annual Report on Form 10K for the year ended April 30, 1990. |
| 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, 1989, including amendments through April 30, 1995, incorporated by reference to the Annual Report on Form 10-K for the year ended April 30, 1996. |
| 10.13 | Lease for the Company's premises at 220 East 42nd Street, New York, N.Y. incorporated by reference to the Annual Report on Form 10-K for the year ended April 30, 1994. |
| 10.14 | Lease amendments dated September 14, 2000 and January 19, 2006, for the Company’s premises located at 220 East 42nd Street, New York, NY. |
| 14 | Code of Business Conduct and Code of Ethics incorporated by reference to Exhibit 14 to the Form 8-K filed on December 1, 2004. |
| 21 | Subsidiaries of the Registrant. |
| 31 | Rules 13a-14(a) and 15d-14(a) Certifications. |
| 32 | Section 1350 Certifications. |
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, 2005,2006, to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| VALUE LINE, INC. (Registrant) By: /s/ Jean Bernhard Buttner
Jean Bernhard Buttner Chairman & Chief Executive Officer (Registrant)
|
|
|
|
| By: | /s/ Jean Bernhard Buttner |
|
Jean Bernhard Buttner |
| Chairman & Chief 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/ Jean Bernhard Buttner | | |
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Jean Bernhard Buttner |
| By: | /s/ Jean Bernhard Buttner |
|
Jean Bernhard Buttner |
| Chairman & Chief Executive Officer |
| | |
| |
| By: | /s/ Stephen R. Anastasio |
|
Stephen R. Anastasio |
| Chief Financial Officer |
By: /s/ Mitchell E. Appel
Chief Financial Officer
Dated: July 28, 2006
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, 2005,2006, to be signed on its behalf by the undersigned as Directors of the Registrant.
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/s/Jean Bernhard Buttner | | /s/ Howard A. Brecher |
Jean Bernhard Buttner | | Howard A. Brecher |
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/s/Harold Bernard, Jr. Edgar A. Buttner | | /s/Samuel Eisenstadt |
Harold Bernard, Jr.Edgar A. Buttner | | Samuel Eisenstadt |
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/s/Edward J. Shanahan | | /s/David T. Henigson |
Edward J. Shanahan | | David T. Henigson |
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/s/Dr. Herbert Pardes | | /s/Edgar A. Buttner Marion N. Ruth |
Dr. Herbert Pardes | Edgar A. Buttner |
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/s/Marianne Asher | |
Marianne Asher | |
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| |
Dated: July 29, 2005 | Marion N. Ruth |
Dated: July 28, 2006
[LETTERHEAD OFH O R O W I T Z & U L L M A N N, P. C.
HOROWITZ & ULLMANN, P.C.]C e r t i f i e d P u b l i c A c c o u n t a n t s
Certified Public Accountants
A member of the AICPA for Public Company Audit Firms | 275 Madison Avenue |
New York State Society of CPAs | New York, NY 10016 |
PCAOB registered | Telephone: (212) 532-3736 |
| Facsimile: (212) 545-8997 |
| E-mail: cpas@horowitz-ullmann.com |
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, 20052006 and 20042005 and the related consolidated statements of income and retained earnings, changes in stockholders’ equity, and cash flows for each of the three years in the period ended April 30, 2005.2006. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements 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. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed below.above.
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, 20052006 and 2004,2005, and the results of their operations, changes in stockholders’ equity, and their cash flows for each of the three years in the period ended April 30, 2005,2006, in conformity with accounting principles generally accepted in the United States of America.
Our audits of the consolidated financial statements referred to above also included an audit of the Financial Statement Schedules listed in Item 15 (a) of Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated statements.
/s/ Horowitz & Ullmann, P.C
New York, NY
July 14, 200524, 2006
Value Line, Inc. |
|
(in thousands, except share amounts) |
Consolidated Balance Sheets | | April 30, | | April 30, | |
| | 2006 | | 2005 | |
Assets | | | | | |
Current Assets: | | | | | |
Cash and cash equivalents (including short term | | | | | |
investments of $14,885 and $5,654, respectively) | | $ | 15,331 | | $ | 5,971 | |
Trading securities | | | 22,314 | | | --- | |
Securities available for sale | | | 65,915 | | | 76,274 | |
Accounts receivable, net of allowance for doubtful | | | | | | | |
accounts of $72 and $52, respectively | | | 3,037 | | | 3,096 | |
Receivable from affiliates | | | 2,917 | | | 2,557 | |
Prepaid expenses and other current assets | | | 1,617 | | | 1,468 | |
Deferred income taxes | | | 88 | | | 32 | |
Total current assets | | | 111,219 | | | 89,398 | |
| | | | | | | |
Long term assets: | | | | | | | |
Property and equipment, net | | | 5,406 | | | 5,984 | |
Capitalized software and other intangible assets, net | | | 2,589 | | | 3,483 | |
Total long term assets | | | 7,995 | | | 9,467 | |
Total assets | | $ | 119,214 | | $ | 98,865 | |
| | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | |
Current Liabilities: | | | | | | | |
Accounts payable and accrued liabilities | | $ | 6,186 | | $ | 4,331 | |
Accrued salaries | | | 1,495 | | | 1,247 | |
Dividends payable | | | 2,495 | | | 2,495 | |
Accrued taxes payable | | | 560 | | | --- | |
Unearned revenue | | | 28,224 | | | 29,748 | |
Deferred income taxes | | | 8,436 | | | 6,176 | |
Total current liabilities | | | 47,396 | | | 43,997 | |
| | | | | | | |
Long term liabilities: | �� | | | | | | |
Unearned revenue | | | 9,502 | | | 10,344 | |
Deferred charges | | | 381 | | | 381 | |
Total long term liabilities | | | 9,883 | | | 10,725 | |
| | | | | | | |
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 | | | 44,256 | | | 30,798 | |
Treasury stock, at cost (18,400 shares on 4/30/06 | | | | | | | |
and 4/30/05) | | | (354 | ) | | (354 | ) |
Accumulated other comprehensive income, net of tax | | | 16,042 | | | 11,708 | |
Total shareholders' equity | | | 61,935 | | | 44,143 | |
Total liabilities and shareholders' equity | | $ | 119,214 | | $ | 98,865 | |
| | | | | | | |
| | | | | | | |
(in thousands, except share amounts)
| | Apr. 30, 2005 | | Apr. 30, 2004 | |
| | | | (restated * ) | |
| | | | | |
Cash and cash equivalents (including short term investments of $5,654 and $177,682, respectively) | | $ | 5,971 | | $ | 178,108 | |
Trading securities | | | — | | | 19,981 | |
Securities available for sale | | | 76,274 | | | 46,357 | |
Receivable from clearing brokers | | | — | | | 5,356 | |
Accounts receivable, net of allowance for doubtful accounts of $52, and $40, respectively | | | 3,096 | | | 1,842 | |
Receivable from affiliates | | | 2,557 | | | 2,920 | |
Prepaid expenses and other current assets | | | 1,468 | | | 1,911 | |
Deferred income taxes | | | 32 | | | 104 | |
Total current assets | | | 89,398 | | | 256,579 | |
| | | | | | | |
Long term assets: | | | | | | | |
Property and equipment, net | | | 5,984 | | | 6,545 | |
Capitalized software and other intangible assets, net | | | 3,483 | | | 3,800 | |
Total long term assets | | | 9,467 | | | 10,345 | |
Total assets | | $ | 98,865 | | $ | 266,924 | |
| | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | |
Current Liabilities: | | | | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 4,331 | | $ | 3,619 | |
Accrued salaries | | | 1,247 | | | 1,576 | |
Dividends payable | | | 2,495 | | | 177,172 | |
Accrued taxes payable | | | — | | | 422 | |
Unearned revenue | | | 29,748 | | | 29,407 | |
Deferred income taxes | | | 6,176 | | | 7,684 | |
Total current liabilities | | | 43,997 | | | 219,880 | |
| | | | | | | |
Long term liabilities: | | | | | | | |
Unearned revenue | | | 10,344 | | | 11,464 | |
Deferred charges | | | 381 | | | 282 | |
Total long term liabilities | | | 10,725 | | | 11,746 | |
| | | | | | | |
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 | | | 30,798 | | | 19,459 | |
Treasury stock, at cost (18,400 shares on 4/30/05 & 4/30/04) | | | (354 | ) | | (354 | ) |
Accumulated other comprehensive income, net of tax | | | 11,708 | | | 14,202 | |
Total shareholders' equity | | | 44,143 | | | 35,298 | |
Total liabilities and shareholders' equity | | $ | 98,865 | | $ | 266,924 | |
* See independent auditor's report and accompanying notes to the consolidated financial statements.
(in thousands, except per share amounts)
| | Years ended April 30, | |
| | 2005 | | 2004 | | 2003 | |
Revenues: | | | | | | | |
Investment periodicals and related publications | | $ | 52,713 | | $ | 52,497 | | $ | 52,469 | |
Investment management fees & services | | | 31,765 | | | 32,773 | | | 29,600 | |
Total revenues | | | 84,478 | | | 85,270 | | | 82,069 | |
Expenses: | | | | | | | | | | |
Advertising and promotion | | | 20,455 | | | 21,821 | | | 20,418 | |
Salaries and employee benefits | | | 19,445 | | | 20,764 | | | 19,938 | |
Production and distribution | | | 8,589 | | | 9,300 | | | 9,400 | |
Office and administration | | | 8,905 | | | 8,646 | | | 8,218 | |
Total expenses | | | 57,394 | | | 60,531 | | | 57,974 | |
| | | | | | | | | | |
Income from operations | | | 27,084 | | | 24,739 | | | 24,095 | |
Income from securities transactions, net | | | 8,278 | | | 8,266 | | | 6,626 | |
Income before income taxes | | | 35,362 | | | 33,005 | | | 30,721 | |
Provision for income taxes | | | 14,044 | | | 12,655 | | | 10,734 | |
Net income | | $ | 21,318 | | $ | 20,350 | | $ | 19,987 | |
| | | | | | | | | | |
| | | | | | | | | | |
Retained earnings, at beginning of year | | | 19,459 | | | 183,768 | | | 173,760 | |
Dividends declared | | | (9,979 | ) | | (184,659 | ) | | (9,979 | ) |
Retained earnings, at end of year | | $ | 30,798 | | $ | 19,459 | | $ | 183,768 | |
Earnings per share, basic and fully diluted | | $ | 2.14 | | $ | 2.04 | | $ | 2.00 | |
Weighted average number of common shares | | | 9,981,600 | | | 9,981,600 | | | 9,981,600 | |
| | | |
| | Years ended April 30, | |
| | 2006 | | 2005 | | 2004 | |
| | | | | | | |
Revenues: | | | | | | | |
Investment periodicals and | | | | | | | |
related publications | | $ | 47,703 | | $ | 50,172 | | $ | 51,360 | |
Licensing fees | | | 5,016 | | | 2,541 | | | 1,137 | |
Investment management fees & svcs | | | 32,467 | | | 31,765 | | | 32,773 | |
Total revenues | | | 85,186 | | | 84,478 | | | 85,270 | |
| | | | | | | | | | |
Expenses: | | | | | | | | | | |
Advertising and promotion | | | 13,671 | | | 20,455 | | | 21,821 | |
Salaries and employee benefits | | | 19,025 | | | 19,445 | | | 20,764 | |
Production and distribution | | | 7,073 | | | 8,589 | | | 9,300 | |
Office and administration | | | 10,237 | | | 8,905 | | | 8,646 | |
Total expenses | | | 50,006 | | | 57,394 | | | 60,531 | |
| | | | | | | | | | |
Income from operations | | | 35,180 | | | 27,084 | | | 24,739 | |
Income from securities transactions, net | | | 3,869 | | | 8,278 | | | 8,266 | |
| | | | | | | | | | |
Income before income taxes | | | 39,049 | | | 35,362 | | | 33,005 | |
Provision for income taxes | | | 15,610 | | | 14,044 | | | 12,655 | |
Net income | | $ | 23,439 | | $ | 21,318 | | $ | 20,350 | |
| | | | | | | | | | |
Earnings per share, basic & fully diluted | | $ | 2.35 | | $ | 2.14 | | $ | 2.04 | |
| | | | | | | | | | |
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.
Value Line, Inc.
Consolidated Statements of Cash Flows
Value Line, Inc. |
|
((in thousands) |
| | Years ended April 30, | | | Years ended April 30, | |
| | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
Cash flows from operating activities: | | | | | | | | | | | | | | |
Net income | | $ | 21,318 | | $ | 20,350 | | $ | 19,987 | | | $ | 23,439 | | $ | 21,318 | | $ | 20,350 | |
| | | | | | | | | | | | | | | | | | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | |
Adjustments to reconcile net income to net cash | | | | | | | | | | | |
provided by operating activities: | | | | | | | | | | | |
Depreciation and amortization | | | 2,506 | | | 2,726 | | | 3,274 | | | | 2,275 | | | 2,506 | | | 2,726 | |
Gains on sales of trading securities and | | | | | | | | | | | | | | | | | | | | |
securities available for sale | | | (8,802 | ) | | (3,075 | ) | | (2,242 | ) | | | (2,430 | ) | | (8,802 | ) | | (3,075 | ) |
Unrealized (gains)/losses on trading securities | | | 1,128 | | | (942 | ) | | (75 | ) | |
Unrealized losses/(gains) on trading securities | | | | 217 | | | 1,128 | | | (942 | ) |
Loss on disposal of fixed assets | | | | 139 | | | — | | | | |
Deferred income taxes | | | (371 | ) | | 193 | | | (1,690 | ) | | | (204 | ) | | (371 | ) | | 146 | |
| | | | | | | | | | | | | | | | | | | | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | |
Proceeds from sales of trading securities | | | 43,385 | | | 41,549 | | | 4,227 | | | | | | | 43,385 | | | 41,549 | |
Purchases of trading securities | | | (22,024 | ) | | (55,406 | ) | | (4,591 | ) | | | (4,364 | ) | | (22,024 | ) | | (55,406 | ) |
(Decrease)/increase in unearned revenue | | | (779 | ) | | 2,292 | | | (2,060 | ) | | | (2,366 | ) | | (779 | ) | | 2,292 | |
Increase/(decrease) in deferred charges | | | 15 | | | (344 | ) | | 73 | | |
(Decrease)/increase in accounts payable and accrued expenses | | | 796 | | | 1,043 | | | (552 | ) | |
(Decrease)/increase in accrued salaries | | | (329 | ) | | 186 | | | (469 | ) | |
(Decrease)/increase in accrued taxes payable | | | (294 | ) | | (191 | ) | | 486 | | |
Decrease/(increase) in prepaid expenses and other current assets | | | 595 | | | (667 | ) | | (40 | ) | |
(Increase)/decrease in accounts receivable | | | (917 | ) | | 667 | | | (33 | ) | |
Decrease/(increase) in receivable from affiliates | | | 363 | | | (610 | ) | | 157 | | |
(Decrease)/increase in deferred charges | | | | (84 | ) | | 15 | | | (344 | ) |
Increase in accounts payable and accrued expenses | | | | 1,939 | | | 796 | | | 1,043 | |
Increase/(decrease) in accrued salaries | | | | 248 | | | (329 | ) | | 186 | |
Increase/(decrease) in accrued taxes payable | | | | 560 | | | (294 | ) | | (144 | ) |
(Increase)/decrease in prepaid expenses and other | | | | | | | | | | | |
current assets | | | | (149 | ) | | 595 | | | (667 | ) |
Decrease/(increase) in accounts receivable | | | | 59 | | | (917 | ) | | 667 | |
(Increase)/decrease in receivable from affiliates | | | | (360 | ) | | 363 | | | (610 | ) |
Total adjustments | | | 15,272 | | | (12,579 | ) | | (3,535 | ) | | | (4,520 | ) | | 15,272 | | | (12,579 | ) |
Net cash provided by operations | | | 36,590 | | | 7,771 | | | 16,452 | | |
| | | | | | | | | | | |
Net cash provided by operating activities | | | | 18,919 | | | 36,590 | | | 7,771 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Proceeds from sales of equity securities | | | 12,671 | | | 5,788 | | | 39,598 | | | | 2,430 | | | 12,671 | | | 5,788 | |
Purchases of equity securities | | | (1,039 | ) | | (1,425 | ) | | (6,894 | ) | |
Purchase of equity securities | | | | (2,467 | ) | | (1,039 | ) | | (1,425 | ) |
Proceeds from sales of fixed income securities | | | 9,019 | | | 229,127 | | | 57,471 | | | | 9,650 | | | 9,019 | | | 229,127 | |
Purchases of fixed income securities | | | (43,092 | ) | | (61,210 | ) | | (202,040 | ) | | | (8,249 | ) | | (43,092 | ) | | (61,210 | ) |
Acquisition of property and equipment | | | (194 | ) | | (271 | ) | | (229 | ) | | | (218 | ) | | (194 | ) | | (271 | ) |
Expenditures for capitalized software | | | (1,436 | ) | | (1,907 | ) | | (1,608 | ) | | | (724 | ) | | (1,436 | ) | | (1,907 | ) |
Net cash (used in)/provided by investing activities | | | (24,071 | ) | | 170,102 | | | (113,702 | ) | |
Net cash provided by/(used in) investing activities | | | | 422 | | | (24,071 | ) | | 170,102 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Proceeds from sales of treasury stock | | | | | | — | | | 45 | | |
Dividends paid | | | (184,656 | ) | | (9,982 | ) | | (9,979 | ) | | | (9,981 | ) | | (184,656 | ) | | (9,982 | ) |
| | | | | | | | | | | |
Net cash used in financing activities | | | (184,656 | ) | | (9,982 | ) | | (9,934 | ) | | | (9,981 | ) | | (184,656 | ) | | (9,982 | ) |
Net (decrease)/increase in cash and cash equivalents | | | (172,137 | ) | | 167,891 | | | (107,184 | ) | |
| | | | | | | | | | | |
Net increase/(decrease) in cash and cash equivalents | | | | 9,360 | | | (172,137 | ) | | 167,891 | |
Cash and cash equivalents at beginning of year | | | 178,108 | | | 10,217 | | | 117,401 | | | | 5,971 | | | 178,108 | | | 10,217 | |
Cash and cash equivalents at end of period | | $ | 5,971 | | $ | 178,108 | | $ | 10,217 | | |
Cash and cash equivalents at end of year | | | $ | 15,331 | | $ | 5,971 | | $ | 178,108 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See independent auditor's report and accompanying notes to the consolidated financial statements.
VALUE LINE, INC.
FOR THE THREE YEARS ENDED APRIL 30, 2006, 2005 & 2004 AND 2003
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | Total | |
| | | | | | | | | | | | | | | | | |
Balance at April 30, 2002 | | | 9,980,125 | | $ | 1,000 | | $ | 975 | | | ($383 | ) | | | | $ | 173,760 | | $ | 20,653 | | $ | 196,005 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | $ | 19,987 | | | 19,987 | | | | | | 19,987 | |
Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in unrealized gains on securities | | | | | | | | | | | | | | | (10,680 | ) | | | | | (10,680 | ) | | (10,680 | ) |
Comprehensive income | | | | | | | | | | | | | | $ | 9,307 | | | | | | | | | | |
Exercise of stock options | | | 1,475 | | | | | | 16 | | | 29 | | | | | | | | | | | | 45 | |
Dividends declared | | | | | | | | | | | | | | | | | | (9,979 | ) | | | | | (9,979 | ) |
Balance at April 30, 2003 | | | 9,981,600 | | $ | 1,000 | | $ | 991 | | | ($354 | ) | | | | $ | 183,768 | | $ | 9,973 | | $ | 195,378 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | $ | 20,350 | | | 20,350 | | | | | | 20,350 | |
Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in unrealized gains on securities | | | | | | | | | | | | | | | 4,229 | | | | | | 4,229 | | | 4,229 | |
Comprehensive income | | | | | | | | | | | | | | $ | 24,579 | | | | | | | | | | |
Dividends declared | | | | | | | | | | | | | | | | | | (184,659 | ) | | | | | (184,659 | ) |
Balance at April 30, 2004 | | | 9,981,600 | | $ | 1,000 | | $ | 991 | | | ($354 | ) | | | | $ | 19,459 | | $ | 14,202 | | $ | 35,298 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | $ | 21,318 | | | 21,318 | | | | | | 21,318 | |
Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in unrealized gains on securities | | | | | | | | | | | | | | | (2,494 | ) | | | | | (2,494 | ) | | (2,494 | ) |
Comprehensive income | | | | | | | | | | | | | | $ | 18,824 | | | | | | | | | | |
Dividends declared | | | | | | | | | | | | | | | | | | (9,979 | ) | | | | | (9,979 | ) |
Balance at April 30, 2005 | | | 9,981,600 | | $ | 1,000 | | $ | 991 | | | ($354 | ) | | | | $ | 30,798 | | $ | 11,708 | | $ | 44,143 | |
| | | | | | | | | | | | | | | |
| | Common stock | | | | | | | | | | Accumulated | | | |
| | Number | | Par | | Additional | | | | | | | | Other | | | |
| | of | | Value | | paid-in | | Treasury | | Comprehensive | | Retained | | Comprehensive | | | |
| | shares | | Amount | | capital | | Stock | | income | | earnings | | income | | Total | |
| | | | | | | | | | | | | | | | | |
Balance at April 30, 2003 | | | 9,981,600 | | $ | 1,000 | | $ | 991 | | $ | (354 | ) | | | | $ | 183,768 | | $ | 9,973 | | $ | 195,378 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | $ | 20,350 | | | 20,350 | | | | | | 20,350 | |
Other comprehensive income, | | | | | | | | | | | | | | | | | | | | | | | | | |
net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in unrealized | | | | | | | | | | | | | | | | | | | | | | | | | |
gains on securities | | | | | | | | | | | | | | | 4,229 | | | | | | 4,229 | | | 4,229 | |
Comprehensive income | | | | | | | | | | | | | | $ | 24,579 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared | | | | | | | | | | | | | | | | | | (184,659 | ) | | | | | (184,659 | ) |
Balance at April 30, 2004 | | | 9,981,600 | | $ | 1,000 | | $ | 991 | | $ | (354 | ) | | | | $ | 19,459 | | $ | 14,202 | | $ | 35,298 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | $ | 21,318 | | | 21,318 | | | | | | 21,318 | |
Other comprehensive income, | | | | | | | | | | | | | | | | | | | | | | | | | |
net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in unrealized | | | | | | | | | | | | | | | | | | | | | | | | | |
gains on securities, | | | | | | | | | | | | | | | | | | | | | | | | | |
net of taxes | | | | | | | | | | | | | | | (2,494 | ) | | | | | (2,494 | ) | | (2,494 | ) |
Comprehensive income | | | | | | | | | | | | | | $ | 18,824 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared | | | | | | | | | | | | | | | | | | (9,979 | ) | | | | | (9,979 | ) |
Balance at April 30, 2005 | | | 9,981,600 | | $ | 1,000 | | $ | 991 | | $ | (354 | ) | | | | $ | 30,798 | | $ | 11,708 | | $ | 44,143 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | $ | 23,439 | | | 23,439 | | | | | | 23,439 | |
Other comprehensive income, | | | | | | | | | | | | | | | | | | | | | | | | | |
net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in unrealized | | | | | | | | | | | | | | | | | | | | | | | | | |
gains on securities, | | | | | | | | | | | | | | | | | | | | | | | | | |
net of taxes | | | | | | | | | | | | | | | 4,334 | | | | | | 4,334 | | | 4,334 | |
Comprehensive income | | | | | | | | | | | | | | $ | 27,773 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared | | | | | | | | | | | | | | | | | | (9,981 | ) | | | | | (9,981 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at April 30, 2006 | | | 9,981,600 | | $ | 1,000 | | $ | 991 | | $ | (354 | ) | | | | $ | 44,256 | | $ | 16,042 | | $ | 61,935 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
See independent auditor's report and accompanying notes to the consolidated financial statements.
Value Line, Inc.
Note 1-Organization and Summary of Significant Accounting Policies:
Value Line, Inc. (the "Company") is incorporated in New York State and carries on theState. Through its subsidiary, Value Line Publishing, Inc. ("VLP") it publishes investment periodicals and related publications andpublications. Value Line, Inc. performs investment management activities formerly performed byservices. Arnold Bernhard & Co., Inc. (the "Parent") which owns approximately 86% of the issued and outstanding common stock 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.
Revenue recognition: Subscription revenues are recognized ratably over the terms of the subscriptions. Accordingly, the amount of subscription fees to be earned by servicing subscriptions after the date of the balance sheet is shown as unearned revenue (see note 17).
revenue.
Investment management fees (except 12b-1 fees) and brokerage commission income are recorded as the related services are performed (see note 3). Service and distribution fees under Rule 12b-1 are earned every month based on the average net assets of the respective mutual fund.
Valuation of Securities:
The Company's securities classified as available for sale consist of shares of the Value Line Mutual Funds ("Value Line Funds") and government debt securities accounted for in accordance with Statement of Financial Accounting Standards No.115, "Accounting for Certain Investments in Debt and Equity Securities".The. The securities are valued at market with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of Shareholders' Equity. Realized gains and losses on sales of the securities available for sale are recorded in earnings on trade date and are determined on the identified cost method.
The Company classifies its securities available for sale as current assets. It does so to properly reflect its liquidity and to recognize the fact that it has assets available for sale to fully satisfy its current liabilities should the need arise (see note 17).
arise. Trading securities held by the Company and subsidiaries are valued at market with unrealized gains and losses included in earnings.
Market valuation of securities listed on a securities exchange and over-the-counter securities traded on the NASDAQ national marketGlobal Market is based on the closing sales prices on the last business day of each month. In the absence of closing sales prices for such securities, and for other securities traded in the over-the-counter market, the security is valued at the midpoint between the latest available and representative asked and bid prices.
Valuation of open-ended mutual fund shares areis based upon the daily net asset values of the shares as calculated by such funds.
The market value of the Company's fixed maturity government debt obligations are valueddetermined utilizing quoted prices at the end of each day provided by an outside pricing service.
Advertising expenses: The Company expenses advertising costs as incurred.
Reclassification: Certain items in the prior year financial statements have been reclassified to conform to the current year presentation.
Value Line, Inc.
Notes to Consolidated Financial Statements
Income Taxes:
The Company computes its income tax provision in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Consolidated 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.
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, 20052006 and 2004,2005, cash equivalents included $5,546,000$14,746,000 and $122,319,000,$5,546,000, respectively, invested in the Value Line money market funds.
Value Line, Inc.
Notes to Consolidated Financial Statements
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 $15,156,000, $14,666,000, $12,755,000, and $11,480,000$12,755,000 in fiscal 2006, 2005, 2004, and 2003,2004, respectively. Interest payments of $11,000, $7,000, $18,000, and $49,000$18,000 were made in fiscal 2006, 2005, and 2004, and 2003, respectively.
Note 3-Related Party Transactions:
The Company acts as investment adviser and manager for fourteen open-ended investment companies, the Value Line Family of Funds (see Note 4).Funds. The Company earns investment management fees based upon the average daily net asset values of the respective funds. Effective July 1, 2000, the Company receivedValue Line Funds. The fourteen Value Line Funds have adopted service and distribution feesplans under rule 12b-1 of the Investment Company Act of 1940 from twelve of the fourteen mutual funds for which1940. During certain periods prior to December 2004, Value Line is the adviser. Effective September 18, 2002, the Company began receiving service and distribution fees under rule 12b-1 from the remaining two funds, for which Value Line,Securities, Inc. is the adviser. The Company also, ("VLS") earned brokerage commission income on securities transactions executed by Value Line Securities, Inc.VLS on behalf of the funds that cleared on a fully disclosed basis through non-affiliated brokers, who received a portion of the gross commission. Pending a review of effecting trades for the Value Line Funds, VLS in November 2004 suspended effectuation ofexecuting trades through VLS for any of the Value Line Funds.
For the twelve months ended April 30, 2006 investment management fees and 12b-1 service and distribution fees amounted to $31,378,000, which included fee waivers for certain of the Value Line Funds. For the years ended April 30, 2005, 2004, and 2003,2004, investment management fees, 12b-1 service and distribution fees and brokerage commission income amounted to $30,206,000, $30,851,000, and $28,022,000,$30,851,000, respectively. These amounts include service and distribution fees of $9,915,000, $9,609,000, and $9,638,000, respectively. There was no brokerage commission income in fiscal year 2006. In fiscal years 2005 and $7,968,000,2004 these amounts included brokerage commission income of $1,378,000 and $2,736,000, respectively. The related receivables from the funds for management advisory fees and service and distribution fees included in Receivable from affiliates were $2,406,000,$2,751,000, and $2,448,000$2,406,000 at April 30, 2006 and 2005, and 2004, respectively.
Value Line, Inc.
Notes to Consolidated Financial Statements
For the years ended April 30, 2006, 2005, 2004, and 2003,2004, the Company was reimbursed $918,000, $689,000 $489,000 and $527,000,$489,000, respectively, for payments it made on behalf of and services it provided to the Parent. At April 30, 20052006 and 2004,2005, Receivable from affiliates included a Receivable from the Parent of $107,000$154,000 and $70,000,$107,000, respectively. For the years ended April 30, 2006, 2005, 2004, and 2003,2004, the Company made payments to the Parent for federal income tax amounting to $11,895,000, $12,115,000 and $10,650,000, and $9,500,000, respectively. At April 30, 2006 accrued taxes payable included a federal tax liability owed to the Parent in the amount of $449,000. At April 30, 2005 accrued taxes payable included a federal tax liability owed to the Company from the Parent in the amount of $145,000. At April 30, 2004 accrued taxes payable included a federal tax liability owed to Parent in the amount of $390,000. These data are in accordance with the tax sharing arrangement described in Note 6.
Note 4-Investments:
Trading Securities:
Trading securities held by the Company at April 30, 2006 had an aggregate cost of $22,402,000 and a market value of $22,314,000. There were no trading securities held at April 30, 2005. Securities held by the Company atThere were no realized trading gains or losses during fiscal year 2006. The proceeds from sales of trading securities during fiscal years ended April 30, 2005 and 2004, had an aggregate cost of $18,854,000were $43,385,000 and a market value of $19,981,000.
Net$41,549,000, respectively, and the related net realized trading gains amounted to $2,502,000 during the year ended April 30, 2005. Net realized trading gains amounted toand $2,084,000, during the year ended April 30, 2004. Net realized trading losses amounted to $969,000 during fiscal 2003.
respectively. The net changes in trading securities for the period ended April 30, 20052006 was a loss of $1,128,000.
$22,402,000. The net changes in unrealized gains or losses for the periods ended April 30, 2006, 2005, and 2004, of $88,000 loss, $1,128,000 loss, and 2003 of $942,000 and $75,000,gain, respectively, were included in the Consolidated Statement of Income.
Value Line, Inc.
Notes to Consolidated Financial Statements
Securities Available for Sale:
Equity Securities:
The aggregate cost of the equity securities classified as available for sale, which are investedconsist of investments in the Value Line mutual funds,Funds, was $21,635,000 and the market value was $46,644,000 at April 30, 2006. The aggregate cost of the equity securities classified as available for sale was $19,169,000 and the market value was $37,209,000 at April 30, 2005. The aggregate cost of the securities at April 30, 2004 was $24,502,000 and the market value was $46,353,000. The total gains for equity securities with net gains included in Accumulated Other Comprehensive Income on the Consolidated Balance Sheet are $18,157,000$25,009,000 and $21,850,000,$18,157,000, net of deferred taxes of $6,355,000$8,803,000 and $7,648,000,$6,355,000, as of April 30, 2006 and 2005, and 2004, respectively. There were no losses on equity securities included in Accumulated Other Comprehensive Income for fiscal year 2006. Losses on equity securities included in Accumulated Other Comprehensive Income for the fiscal years ended April 30, 2005 was $117,000.
There were no losses on equity securities included in Accumulated Other Comprehensive Income for fiscal year 2004.$117,000, net of deferred tax benefit of $42,000. The decreaseincrease in gross unrealized gains on these securities of $3,810,000$6,969,000 and the increasedecrease of $8,066,000,$3,810,000, net of deferred taxes of $1,344,000$2,453,000 and $2,823,000,$1,344,000, were included in Shareholders' Equity at April 30, 2006 and 2005, and 2004, respectively.
Realized capital gains from the sales of securities classified as available for sale were $2,430,000, $6,177,000 $1,441,000 and $2,609,000$1,441,000 of which $2,355,000, $5,738,000 $1,413,000 and $1,997,000$1,413,000 of capital gains were reclassified out of Accumulated Other Comprehensive Income into earnings during fiscal years ended April 30, 2006, 2005, 2004, and 2003,2004, respectively. The proceeds received from the sales of these securities including capital gain distributions reinvested in the Value Line Funds during the fiscal years ended April 30, 2006, 2005, and 2004 were $2,430,000, $12,671,000 and 2003 were $12,671,000, $9,751,000, and $39,598,000, respectively. Proceeds and capital gains for fiscal 2005 includeincluded $75,000 and $433,000 from the installment sale of shares of common stock, received from a vendoran investment in a negotiated contract. An additional $74,000 is beingprivately held in escrow until January 2006.company, during fiscal 2006 and 2005, respectively.
Value Line, Inc.
Notes to Consolidated Financial Statements
Government Debt Securities:
The Company's investments in debt securities are classified as available for sale and valued at market value. The aggregate cost and fair value at April 30, 2006 for U.S. government debt securities classified as available for sale were as follows:
| | | | (In Thousands) | | | |
| | Historical | | | | Gross Unrealized | |
Maturity | | Cost | | Fair Value | | Holding Losses | |
Due in less than 2 years | | $ | 10,778 | | $ | 10,641 | | | ($137 | ) |
Due in 2-5 years | | | 8,745 | | | 8,630 | | | (115 | ) |
Total investment in debt securities | | $ | 19,523 | | $ | 19,271 | | | ($252 | ) |
The aggregate cost and fair value at April 30, 2005 for U.S. government debt securities classified as available for sale were as follows:
| | | | (In Thousands) | | | | | | | (In Thousands) | | | |
| | | | Fair Value | | Gross UnrealizedHolding Losses | | | Historical | | | | Gross Unrealized | |
Maturity | | | | | | | | | Cost | | Fair Value | | Holding Losses | |
Due in less than 2 years | | $ | 34,506 | | $ | 34,481 | | | ($25 | ) | | $ | 34,506 | | $ | 34,481 | | | ($25 | ) |
Due in 2-5 years | | | 4,587 | | | 4,584 | | | (3 | ) | | | 4,587 | | | 4,584 | | | (3 | ) |
Total investment in debt securities | | $ | 39,093 | | $ | 39,065 | | | ($28 | ) | | $ | 39,093 | | $ | 39,065 | | | ($28 | ) |
The aggregate cost and fair value at April 30, 2004 for U.S. government debt securities classified as available for sale were as follows:
| | | | | | | |
| | | | (In Thousands) | | | |
| | | | Fair Value | | Gross UnrealizedHolding Gains | |
Maturity | | | | | | | |
Due in 1-2 years | | $ | 1 | | $ | 1 | | $ | 0 | |
Total investment in debt securities | | $ | 1 | | $ | 1 | | $ | 0 | |
The unrealized losslosses of $252,000 and $28,000 in U.S. government debt securities wasnet of deferred taxes of $89,000 and $10,000, respectively, were included in Accumulated Other Comprehensive Income on the Consolidated Balance Sheets as of April 30, 2005. There are no gains or losses on U.S. government2006 and 2005, respectively. During fiscal year 2006, the Company reclassified $18,038,000 of US Government debt securities includedfrom the classification of available for sale to trading securities that resulted in the recognition and reclassification of an unrealized loss of $129,000 from Accumulated Other Comprehensive Income onto the Consolidated Balance Sheets asCondensed Statement of April 30, 2004.Income.
The average yield on the U.S. Government debt securities classified as available for sale at April 30, 20052006 and April 30, 20042005 was 3.62%3.76% and 2.59%3.62%, respectively.
Proceeds from sales of government debt securities classified as available for sale during fiscal years 2006, 2005, were$9,019,000.and 2004 were $9,650,000, $9,019,000 and $230,210,000, respectively. There were no related gains or losses.
Proceeds fromlosses on sales of government debt securities classified as available for sale during fiscal 2006 or 2005. In fiscal 2004, were$230,210,000 and the related loss on sales which wereof $354,000 was reclassified from Accumulated Other Comprehensive Income in the Balance Sheet, was $354,000. Proceeds from sales of government debt securities available for sale during fiscal 2003 were $57,471,000 and the related gain on sales, which were reclassified from Accumulated Other Comprehensive Income on the Balance Sheet, was $602,000.
For the years ended April 30, 2005, 2004, and 2003, income from securities transactions also included $239,000, $247,000,and $832,000 of dividend income; $363,000, $4,012,000, and $3,529,000 of interest income; and $7,000, $18,000 and $49,000 of related interest expense, respectively.
Sheet.
Value Line, Inc.
Notes to Consolidated Financial Statements
For the years ended April 30, 2006, 2005, and 2004, income from securities transactions also included $483,000, $239,000,and $247,000 of dividend income; $1,361,000, $363,000, and $4,012,000 of interest income; and $11,000, $7,000 and $18,000 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, | | | |
| | 2005 | | 2004 | |
| | (in thousands) | |
Land | | $ | 726 | | $ | 726 | |
Building and leasehold improvements | | | 7,834 | | | 7,834 | |
Furniture and equipment | | | 10,752 | | | 10,569 | |
| | | 19,312 | | | 19,129 | |
Accumulated depreciation and amortization | | | (13,328 | ) | | (12,584 | ) |
| | $ | 5,984 | | $ | 6,545 | |
| | April 30, | |
| | 2006 | | 2005 | |
| | (in thousands) | | | |
| | | | | |
Land | | $ | 726 | | $ | 726 | |
Building and leasehold improvements | | | 7,284 | | | 7,834 | |
Furniture and equipment | | | 10,652 | | | 10,752 | |
| | | 18,662 | | | 19,312 | |
Accumulated depreciation and amortization | | | (13,256 | ) | | (13,328 | ) |
| | $ | 5,406 | | $ | 5,984 | |
Note 6-Federal, State and Local Income Taxes:
The Company computes its income tax provision in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The provision for income taxes includes the following:
| | | Years ended April 30, | | |
| | | | | | | |
| | 2005 | | 2004 | | 2003 | |
Current: | | | | (in thousands) | | | |
Federal | | $ | 11,860 | | $ | 10,453 | | $ | 10,383 | |
State and local | | | 2,555 | | | 2,056 | | | 2,041 | |
| | | 14,415 | | | 12,509 | | | 12,424 | |
Deferred: | | | | | | | | | | |
Federal | | | (361 | ) | | 134 | | | (1,704 | ) |
State and local | | | (10 | ) | | 12 | | | 14 | |
| | | (371 | ) | | 146 | | | (1,690 | ) |
Provision for income taxes | | $ | 14,044 | | $ | 12,655 | | $ | 10,734 | |
| | Year ended April 30, | |
| | 2006 | | 2005 | | 2004 | |
| | (in thousands) | |
Current: | | | | | | | |
Federal | | $ | 12,486 | | $ | 11,860 | | $ | 10,453 | |
State and local | | | 3,328 | | | 2,555 | | | 2,056 | |
| | | 15,814 | | | 14,415 | | | 12,509 | |
Deferred: | | | | | | | | | | |
Federal | | | (148 | ) | | (361 | ) | | 134 | |
State and local | | | (56 | ) | | (10 | ) | | 12 | |
| | | (204 | ) | | (371 | ) | | 146 | |
Provision for income taxes | | $ | 15,610 | | $ | 14,044 | | $ | 12,655 | |
Deferred 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)/asset are as follows:
Value Line, Inc.
Notes to Consolidated Financial Statements
| | | Years ended April 30, | | |
| | 2005 | | 2004 | | 2003 | |
| | | | (in thousands) | | | |
| | | | | | | |
Unrealized gains on securities held for sale | | | ($6,304 | ) | | ($7,648 | ) | | ($5,370 | ) |
Unrealized gains on trading securities | | | — | | | (395 | ) | | (65 | ) |
Depreciation and amortization | | | (356 | ) | | (101 | ) | | (294 | ) |
Deferred professional fees | | | 342 | | | 348 | | | 340 | |
Deferred charges | | | 183 | | | 151 | | | 308 | |
Other, net | | | (41 | ) | | 65 | | | (127 | ) |
| | | ($6,176 | ) | | ($7,580 | ) | | ($5,208 | ) |
| | Year ended April 30, | |
| | 2006 | | 2005 | | 2004 | |
| | (in thousands) | |
| | | | | | | |
Unrealized gains on securities held for sale | | | ($8,715 | ) | | ($6,304 | ) | | ($7,648 | ) |
Unrealized gains on trading securities | | | (76 | ) | | — | | | (395 | ) |
Depreciation and amortization | | | (90 | ) | | (356 | ) | | (101 | ) |
Deferred professional fees | | | 246 | | | 342 | | | 348 | |
Deferred charges | | | 214 | | | 183 | | | 151 | |
Other, net | | | (15 | ) | | (41 | ) | | 65 | |
| | | ($8,436 | ) | | ($6,176 | ) | | ($7,580 | ) |
Included in deferred income taxes in total current assets are deferred state and local income taxes of $32,000$88,000 and $104,000$32,000 at April 30, 20052006 and 2004,2005, respectively.
Value Line, Inc.
Notes to Consolidated Financial Statements
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:
| | | Years ended April 30, | | |
| | 2005 | | 2004 | | 2003 | |
| | | | (in thousands) | | | |
| | | | | | | |
Tax expense at the U.S. statutory rate | | $ | 12,377 | | $ | 11,552 | | $ | 10,752 | |
Increase (decrease) in tax expense from: | | | | | | | | | | |
State and local income taxes, net of | | | | | | | | | | |
federal income tax benefit | | | 1,654 | | | 1,344 | | | 1,336 | |
Effect of tax exempt income and dividend | | | | | | | | | | |
deductions | | | (88 | ) | | (278 | ) | | (95 | ) |
Other, net | | | 101 | | | 37 | | | (1,259 | ) |
Provision for income taxes | | $ | 14,044 | | $ | 12,655 | | $ | 10,734 | |
The provision for income taxes has been reduced by approximately $1,257,000 for the fiscal year ended April 30, 2003, primarily resulting from the favorable disposition of a pending tax audit, which was concluded during the year. | | Year ended April 30, | |
| | 2006 | | 2005 | | 2004 | |
| | | | (in thousands) | | | |
| | | | | | | |
Tax expense at the U.S. statutory rate | | $ | 13,667 | | $ | 12,377 | | $ | 11,552 | |
Increase (decrease) in tax expense from: | | | | | | | | | | |
State and local income taxes, net of | | | | | | | | | | |
federal income tax benefit | | | 2,127 | | | 1,654 | | | 1,344 | |
Effect of tax exempt income and dividend deductions | | | (293 | ) | | (88 | ) | | (278 | ) |
Other, net | | | 109 | | | 101 | | | 37 | |
Provision for income taxes | | $ | 15,610 | | $ | 14,044 | | $ | 12,655 | |
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.
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 upon the salaries of eligible employees and the amount of consolidated net operating income as defined in the Plan. Plan expense, included in salaries and employee benefits in the Consolidated Statements of Income and Retained Earnings, for the years ended April 30, 2006, 2005, and 2004 was $1,244,000, $1,082,000, and 2003 was $1,082,000, $1,217,000, and $862,000, respectively.
Note 8-Incentive Stock Options:
On April 17, 1993, the Incentive Stock Option Plan expired. On the date of expiration, 22,550 options available for grant were cancelled. Information on the Incentive Stock Option Plan for the three years ended April 30, 2005, is as follows:
| | | | | |
| | | | | |
Outstanding at April 30, 2002 | | | 1,475 | | $ | 29.75 | |
Granted | | | — | | | | |
Exercised | | | (1,475 | ) | $ | 29.75 | |
Cancelled | | | — | | | | |
Outstanding at April 30, 2003 | | | — | | | | |
Granted | | | — | | | | |
Exercised | | | — | | | | |
Cancelled | | | — | | | | |
Outstanding at April 30, 2004 | | | — | | | | |
Granted | | | — | | | | |
Exercised | | | — | | | | |
Cancelled | | | — | | | | |
Outstanding at April 30, 2005 | | | — | | | | |
At April 30, 2005, all of the options under the option plan were exercised. Of the common stock held in treasury at April 30, 2002, 1,475 shares were issued during fiscal 2003 for the exercise of stock options.
Value Line, Inc.
Notes to Consolidated Financial Statements
Note 9-Treasury Stock:
Treasury stock, at cost, for the three years ended April 30, 2005, consists of the following:
| | | | | |
| | Shares | | Amount | |
| | | | (in thousands) | |
| | | | | |
Balance April 30, 2002 | | | 19,875 | | $ | 383 | |
Exercise of incentive stock options | | | (1,475 | ) | | (29 | ) |
Balance April 30, 2003 | | | 18,400 | | $ | 354 | |
Exercise of incentive stock options | | | — | | | — | |
Balance April 30, 2004 | | | 18,400 | | $ | 354 | |
Exercise of incentive stock options | | | — | | | — | |
Balance April 30, 2005 | | | 18,400 | | $ | 354 | |
Note 10-Lease8-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 expires in May 2008 subject to an option 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 has 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 September 14, 2000, the Company amended its lease for primary office space and returned to the landlord approximately 6,000 square feet of excess office capacity, reducing the Company's future minimum lease payments accordingly. On January 19, 2006, the Company amended its lease for primary office space and returned to the landlord approximately 11,000 square feet of excess office capacity, reducing the Company's future minimum lease payments accordingly.
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) | |
| | | |
2006 | | | 1,788 | |
2007 | | | 1,788 | |
2008 | | | 1,148 | |
Thereafter | | | 21 | |
| | $ | 4,745 | |
| | Year ended April 30: | | (in thousands) | |
| | | | | |
| | | 2007 | | $ | 1,690 | |
| | | 2008 | | | 1,039 | |
| | | 2009 | | | 162 | |
| | | 2010 | | | 108 | |
| | | Thereafter | | | — | |
| | | | | $ | 2,999 | |
Rental expense for the years ended April 30, 2006, 2005 2004 and 20032004 under operating leases covering office space was $1,724,000, $1,799,000, and $1,544,000, and $1,350,000, respectively.
Value Line, Inc.
Notes to Consolidated Financial Statements
Note 11-Business9-Business Segments:
The Company operates two reportable business segments: Publishing and Investment Management Services. The publishing segment produces investment related periodicals in both print and electronic form.form, and licensing fees. The investment management segment provides advisory services to mutual funds,the Value Line Funds, as well as institutional and individual clients as well as brokerage services for the Value Line family of mutual funds.accounts. The segments are differentiated by the products and services they offer.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company allocates all revenues and expenses, except for depreciation and income from securities transactions related to corporate assets, between the two reportable segments.
Disclosure of Reportable Segment Profit and Segment Assets (in thousands)
| | | | April 30, 2005 | | | |
| | Publishing | | Investment | | Total | |
| | | | Management Services | | | |
| | | | | | | |
Revenues from external customers | | $ | 52,713 | | $ | 31,765 | | $ | 84,478 | |
Intersegment revenues | | | 180 | | | — | | | 180 | |
Income from securities transactions | | | 14 | | | 7,914 | | | 7,928 | |
Depreciation and amortization | | | 2,384 | | | 106 | | | 2,490 | |
Segment profit | | | 16,420 | | | 10,680 | | | 27,100 | |
Segment assets | | | 14,871 | | | 44,409 | | | 59,280 | |
Expenditures for segment assets | | | 1,441 | | | 189 | | | 1,630 | |
| | | | | | | | | | | |
| | | | | | April 30, 2004 | | | | | April 30, 2006 | |
| | | Publishing | | | Investment | | | Total | | | Publishing & | | Investment | | | |
| | | | | | Management Services | | | | | | Licensing | | Management | | Total | |
| | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 52,497 | | $ | 32,773 | | $ | 85,270 | | | $ | 52,719 | | $ | 32,467 | | $ | 85,186 | |
Intersegment revenues | | | 193 | | | — | | | 193 | | | | 114 | | | — | | | 114 | |
Income from securities transactions | | | 4 | | | 8,262 | | | 8,266 | | | | 62 | | | 2,922 | | | 2,984 | |
Depreciation and amortization | | | 2,632 | | | 62 | | | 2,694 | | | | 2,169 | | | 88 | | | 2,257 | |
Segment profit | | | 14,391 | | | 10,380 | | | 24,771 | | | | 20,041 | | | 15,158 | | | 35,199 | |
Segment assets | | | 14,592 | | | 74,786 | | | 89,378 | | | | 14,861 | | | 81,762 | | | 96,623 | |
Expenditures for segment assets | | | 2,128 | | | 45 | | | 2,173 | | | | 933 | | | 9 | | | 942 | |
| | | | | | | | | | | |
| | April 30, 2005 | |
| | Publishing & | | Investment | | | |
| | Licensing | | Management | | Total | |
| | | | | | | |
Revenues from external customers | | $ | 52,713 | | $ | 31,765 | | $ | 84,478 | |
Intersegment revenues | | | 180 | | | — | | | 180 | |
Income from securities transactions | | | 14 | | | 7,914 | | | 7,928 | |
Depreciation and amortization | | | 2,384 | | | 106 | | | 2,490 | |
Segment profit | | | 16,420 | | | 10,680 | | | 27,100 | |
Segment assets | | | 14,871 | | | 44,409 | | | 59,280 | |
Expenditures for segment assets | | | 1,441 | | | 189 | | | 1,630 | |
| | April 30, 2004 | |
| | Publishing & | | Investment | | | |
| | Licensing | | Management | | Total | |
| | | | | | | |
Revenues from external customers | | $ | 52,497 | | $ | 32,773 | | $ | 85,270 | |
Intersegment revenues | | | 193 | | | | | | 193 | |
Income from securities transactions | | | 4 | | | 8,262 | | | 8,266 | |
Depreciation and amortization | | | 2,632 | | | 62 | | | 2,694 | |
Segment profit | | | 14,391 | | | 10,380 | | | 24,771 | |
Segment assets | | | 14,592 | | | 74,786 | | | 89,378 | |
Expenditures for segment assets | | | 2,128 | | | 45 | | | 2,173 | |
| | | | | | | | | | |
Value Line, Inc.
Notes to Consolidated Financial Statements
| | | | April 30, 2003 | | | |
| | Publishing | | Investment | | Total | |
| | | | Management | | | |
| | | | Services | | | |
| | | | | | | |
Revenues from external customers | | $ | 52,469 | | $ | 29,600 | | $ | 82,069 | |
Intersegment revenues | | | 180 | | | — | | | 180 | |
Income from securities transactions | | | 38 | | | 6,588 | | | 6,626 | |
Depreciation and amortization | | | 3,080 | | | 156 | | | 3,236 | |
Segment profit | | | 13,660 | | | 10,473 | | | 24,133 | |
Segment assets | | | 18,648 | | | 227,786 | | | 246,434 | |
Expenditures for segment assets | | | 1,571 | | | 37 | | | 1,608 | |
Reconciliation of Reportable Segment Revenues,
Operating Profit and Assets
| | | | | | | | | | | | | | |
| | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
Revenues | | | | | | | | | | | | | | |
Total revenues for reportable segments | | $ | 84,658 | | $ | 85,463 | | $ | 82,249 | | | $ | 85,300 | | $ | 84,658 | | $ | 85,463 | |
Elimination of intersegment revenues | | | (180 | ) | | (193 | ) | | (180 | ) | | | (114 | ) | | (180 | ) | | (193 | ) |
Total consolidated revenues | | $ | 84,478 | | $ | 85,270 | | $ | 82,069 | | | $ | 85,186 | | $ | 84,478 | | $ | 85,270 | |
| | | | | | | | | | | | | | | | | | | | |
Segment profit | | | | | | | | | | | | | | | | | | | | |
Total profit for reportable segments | | $ | 35,028 | | $ | 33,037 | | $ | 30,759 | | | $ | 38,183 | | $ | 35,028 | | $ | 33,037 | |
Add: Income from securities transactions | | | | | | | | | | | | | | | | | | | | |
related to corporate assets | | | 350 | | | — | | | — | | | | 884 | | | 350 | | | — | |
Less: Depreciation related to corporate assets | | | (16 | ) | | (32 | ) | | (38 | ) | | | (18 | ) | | (16 | ) | | (32 | ) |
Income before income taxes | | $ | 35,362 | | $ | 33,005 | | $ | 30,721 | | | $ | 39,049 | | $ | 35,362 | | $ | 33,005 | |
| | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | |
Total assets for reportable segments | | $ | 59,280 | | $ | 89,378 | | $ | 246,434 | | | $ | 96,623 | | $ | 59,280 | | $ | 89,378 | |
Corporate assets | | | 39,585 | | | 177,546 | | | 380 | | | | 22,591 | | | 39,585 | | | 177,546 | |
Consolidated total assets | | $ | 98,865 | | $ | 266,924 | | $ | 246,814 | | | $ | 119,214 | | $ | 98,865 | | $ | 266,924 | |
| | | | | | | | | | | |
Note 12-Net10-Net Capital:
The Company's wholly owned subsidiary, Value Line Securities, Inc., 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. Additionally, dividends may only be declared if aggregate indebtedness is less than twelve times net capital.
At April 30, 2005,2006, the net capital, as defined, of Value Line Securities, Inc. of $3,363,800$23,866,195 exceeded required net capital by $3,263,800$23,766,195 and the ratio of aggregate indebtedness to net capital was .24.06 to 1.
Value Line, Inc.Notes to Consolidated Financial Statements
Note 13-Disclosure11-Disclosure of Credit Risk of Financial Instruments with Off Balance Sheet Risk:
In the normal course of business, the Company enters into contractual commitments, principallyincluding 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, 20052006 and 2004,2005, the Company did not have any investment in financial futures contracts. The Company limits its credit risk associated with such instruments by entering into exchange traded future contracts.
Although Value Line Securities, Inc. did not do so during fiscal 2006, during prior periods it executed, as agent, securities transactions on behalf of the Value Line mutual funds.Funds. If either the mutual fund or a counter party failfails to perform, Value Line Securities, Inc. maymight be required to discharge the obligations of the nonperforming party. In such circumstances, Value Line Securities, Inc. maymight sustain a loss if the market value of the security is different from the contract value of the transaction.
NoOther than the Value Line Funds as explained in note 3, no single customer accounted for a significant portion of the Company's sales in 2006, 2005 2004 or 2003,2004, nor accounts receivable for 20052006 or 2004.2005.
Note 14-Comprehensive12-Comprehensive Income:
During the fiscal year 1999, theThe Company has adopted Financial Accounting Standards No. 130, "Reporting Comprehensive Income". Statement No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.
At April 30, 2006, 2005, 2004, and 2003,2004, 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.
Value Line, Inc.
Notes to Consolidated Financial Statements
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 | |
Year ended 4-30-05 | | Amount | | or Benefit | | Amount | |
Unrealized Gains on Securities: | | | | | | | |
Unrealized Holding Gains/(Losses) | | | | | | | |
Arising during the period | | $ | 1,902 | | | ($666 | ) | $ | 1,236 | |
Less: Reclassification adjustments | | | | | | | | | | |
for gains realized in net income | | | (5,738 | ) | | 2,008 | | | (3,730 | ) |
Other Comprehensive income | | | ($3,836 | ) | $ | 1,342 | | | ($2,494 | ) |
| | | | | | | | | | |
Year ended 4-30-04 | | | | | | | | | | |
Unrealized Gains on Securities: | | | | | | | | | | |
Unrealized Holding Gains/(Losses) | | | | | | | | | | |
Arising during the period | | $ | 7,566 | | | ($2,649 | ) | $ | 4,917 | |
Less: Reclassification adjustments | | | | | | | | | | |
for gains realized in net income | | | (1,059 | ) | | 371 | | | (688 | ) |
Other Comprehensive income | | $ | 6,507 | | | ($2,278 | ) | $ | 4,229 | |
| | | | | | | | | | |
Year ended 4-30-03 | | | | | | | | | | |
Unrealized Gains on Securities: | | | | | | | | | | |
Unrealized Holding Gains/(Losses) | | | | | | | | | | |
Arising during the period | | | ($13,831 | ) | $ | 4,840 | | | ($8,991 | ) |
Less: Reclassification adjustments | | | | | | | | | | |
for gains realized in net income | | | ($2,599 | ) | | 910 | | | (1,689 | ) |
Other Comprehensive income | | | ($16,430 | ) | $ | 5,750 | | | ($10,680 | ) |
| | | | | | | |
| | | | (in thousands) | | | |
| | Before | | Tax | | Net of | |
| | Tax | | (Expense) | | Tax | |
| | Amount | | or Benefit | | Amount | |
Year ended 4-30-06 | | | | | | | |
Unrealized Gains on Securities: | | | | | | | |
Unrealized Holding Gains/(Losses) Arising during the period | | $ | 8,971 | | | ($3,195 | ) | $ | 5,776 | |
Add: Reclassification adjustments for | | | | | | | | | | |
losses realized in net income | | | 129 | | | (45 | ) | | 84 | |
Less: Reclassification adjustments | | | | | | | | | | |
for gains realized in net income | | | (2,355 | ) | | 829 | | | (1,526 | ) |
Other Comprehensive income | | $ | 6,745 | | | ($2,411 | ) | $ | 4,334 | |
| | | | | | | | | | |
Year ended 4-30-05 | | | | | | | | | | |
Unrealized Gains on Securities: | | | | | | | | | | |
Unrealized Holding Gains/(Losses) Arising during the period | | $ | 1,902 | | | ($666 | ) | $ | 1,236 | |
Less: Reclassification adjustments | | | | | | | | | | |
for gains realized in net income | | | (5,738 | ) | | 2,008 | | | (3,730 | ) |
Other Comprehensive income | | | ($3,836 | ) | $ | 1,342 | | | ($2,494 | ) |
| | | | | | | | | | |
Year ended 4-30-04 | | | | | | | | | | |
Unrealized Gains on Securities: | | | | | | | | | | |
Unrealized Holding Gains/(Losses) Arising during the period | | $ | 7,566 | | | ($2,649 | ) | $ | 4,917 | |
Less: Reclassification adjustments | | | | | | | | | | |
for gains realized in net income | | | (1,059 | ) | | 371 | | | (688 | ) |
Other Comprehensive income | | $ | 6,507 | | | ($2,278 | ) | $ | 4,229 | |
| | | | | | | | | | |
Value Line, Inc.
Notes to Consolidated Financial Statements
Note 15-Accounting13-Accounting for the Costs of Computer Software Developed for Internal Use:
During fiscal year 1999, theThe Company has adopted the provisions of the Statement of Position 98-1, (SOP98-1)(SOP 98-1), "Accounting for the Costs of Computer Software Developed for Internal Use". SOP 98-1 is effective for tax years ending after December 31, 1998.
The 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, 20052006 and 2004,2005, the Company capitalized $861,000$508,000 and $1,123,000$861,000 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 30,2005,30, 2006, 2005 and 2004 was $916,000, $940,000, and 2003 was $940,000, $889,000, and $1,062,000, respectively.
Note 16-Contingencies:14-Contingencies:
TheOn September 17, 2003 the Company commenced an action in New York Supreme Court, seeking damages in an unspecified amount, against a small mutual fund company pertaining to a contemplated transaction. The Company was countersued for alleged damages in excess of $5,000,000. The action was settled in November 2004 without a material adverse effect on the Company. A related entity of the defendant in the New York action brought suit against the Company and certain Directors in Federal Court in Texas in March, 2004 based on the same transaction. On the Company's motion, that action has been transferred from Texas to New York. On March 2, 2006 the Federal Judge in New York granted the Company's motion dismissing three causes of action. The court allowed one cause of action to continue at this time. Although the ultimate outcome of the litigation is subject to the inherent uncertainties of any legal proceeding, based upon Counsel's analysis of the factual and legal issues and the Company's meritorious defenses, it is management's belief that the expected outcome of this matter will not have a material adverse effect on the Company's consolidated results of operations and financial condition.
By letter dated June 15, 2005, the staff of the Securities and Exchange Commission requestedinformed the Company as part ofthat it was conducting a preliminary inquiry to provideinquiry. Thereafter, the staff has requested documents and information relating to, among other things, trades for the Company's and affiliates' proprietary accounts, and the effectuation and execution of trades through VLS for the Value Line Funds.Funds and the fees collected by VLS from the Value Line Funds pursuant to a Service and Distribution Plan. The Company intends to cooperateand its subsidiaries are cooperating with the preliminary inquiry. Management cannot determine the effect, if any, that the inquiry will have on the results of operation and financial condition.
Value Line Inc. |
|
As of April 30, 2006 |
| | Number of | | Historical | | Market | |
| | Shares | | Cost | | Value | |
| | | | | | | |
Marketable Securities | | | | | | | |
Federal Home Loan Bank 3.375% Due 2/07 | | | 15,000 | | | 14,758,500 | | | 14,782,500 | |
Missouri State Cert. Participation Muni Bond 5% due 6/08 | | | 3,155 | | | 3,279,591 | | | 3,232,771 | |
Orange Cnty Fla Tourist Dev. Tax Muni Bond 5.5% due 10/20 | | | 3,000 | | | 3,220,980 | | | 3,171,840 | |
Potterville MI Public School Muni Bond 5.75% due 5/20 | | | 1,065 | | | 1,143,704 | | | 1,126,962 | |
Total Marketable Securities | | | | | $ | 22,402,775 | | $ | 22,314,073 | |
Note 17-Restatement of Financial Position:
The Company has in the past consistently classified its unearned revenue, which represents the amount of subscription fees to be earned by servicing subscriptions after the date of the balance sheet (see Note 1),as a non-current deferred credit. This classification recognized that the fulfillment of this commitment will require the use of significantly fewer current assets than the amount of the unearned revenues. The Company has reclassified its unearned revenue to conform with the provisions of Accounting Research Bulletin No. 43, and accordingly has restated its consolidated financial statements for the years ended April 30, 2004 and 2003 to reflect the portion of the unearned revenue that will be recognized during the twelve months following the date of the balance sheet as a current liability. This presentation is also used for the year ended April 30, 2005.This presentation is in conformity with generally accepted accounting principles.
In connection with the aforementioned reclassification of the unearned revenue, the Company decided to reclassify securities available for sale from non-current to current assets. As previously discussed, the Company uses significantly fewer current assets than the amount of the unearned revenues to fulfill its commitments to serve its subscribers. However, in the unlikely event that the need arises to fully satisfy its current liabilities immediately, the Company could do so by selling a portion of its portfolio of securities available for sale. Therefore, in light of the reclassification of its unearned revenue, the Company believes that reclassifying its available for sale securities as current assets will more accurately reflect the liquidity position of the Company. The deferred income taxes liability, which primarily represents future taxes on the unrealized gains on the available for sale securities has also been reclassified as a current liability.
Accordingly, the accompanying consolidated financial statements, as of April 30, 2004 and 2003 and for the years then ended have been restated from those originally reported to reflect the reclassification of unearned revenue and available for sale securities. The change in the classification of unearned revenue and available for sale securities has no impact on the Company's reported net income or cash flows.
Summarized financial information illustrating the effect of the restatement on the Company's consolidated financial statements is as follows:
| | | | |
| | April 30, 2004 | | |
| | As Originally | | | |
| | Reported | | As Restated | |
Financial Position | | | | | |
Current Assets | | | | | |
Securities available for sale | | $ | — | | $ | 46,357 | |
| | | | | | | |
Long-Term Assets | | | | | | | |
Long-term securities available for sale | | | 46,357 | | | — | |
| | | | | | | |
Current Liabilities | | | | | | | |
Unearned revenue | | | — | | | 29,407 | |
Deferred Income Taxes | | | | | | 7,684 | |
| | | | | | | |
Long-Term Liabilities | | | | | | | |
Unearned revenue | | | 40,871 | | | 11,464 | |
Deferred Income Taxes | | | 7,684 | | | | |
| | Historical | | Market | |
Investments In Value Line Mutual Funds | | Cost | | Value | |
The Value Line Fund | | | 655,157 | | | 661,098 | |
The Value Line Income & Growth Fund | | | 607,822 | | | 611,445 | |
The Value Line Emerging Opportunity Fund | | | 6,437,825 | | | 17,806,316 | |
The Value Line Asset Allocation Fund | | | 13,930,768 | | | 27,561,937 | |
Total Investment In Value Line Mutual Funds | | $ | 21,631,572 | | $ | 46,640,796 | |
| | | | | | | |
300 Shares of National Association of Securities Dealers, Inc. | | $ | 3,300 | | $ | 3,300 | |
| | | | | | | |
Fixed Income Investments | | | | | | | |
| | | | | | | |
Treasury Note 2.625% due 11/06 | | | 5,704,898 | | | 5,628,750 | |
Chicago Illinois School Finance Muni Bond 5.375% due 6/08 | | | 1,244,814 | | | 1,205,402 | |
Texas Tax & Revenue 4.5% due 8-31-06 | | | 5,073,100 | | | 5,012,250 | |
Georgia State General Obligation Muni Bond 5% due 12/08 | | | 3,175,260 | | | 3,099,570 | |
Weekly Adjustable Northern California Transmission Muni Bond due 5/24 | | | 4,325,000 | | | 4,325,000 | |
Total Fixed Income Investments | | $ | 19,523,072 | | $ | 19,270,972 | |
| | | | | | | |
| | | | | | | |
Total Securities Available For Sale | | $ | 41,157,944 | | $ | 65,915,068 | |
| | | | | | | |
Value Line, Inc. | | | | | |
Schedule XIII-Other Investments:4/30/2005 | | | | | |
| | | | | |
| | | | | |
Securities Available For Sale: | | Historical | | Market | |
| | Cost | | Value | |
Investments In Value Line Mutual Funds | | | | | |
| | | | | |
The Value Line Fund | | | 569,463 | | | 497,873 | |
The Value Line Income & Growth Fund | | | 556,405 | | | 511,258 | |
The Value Line Emerging Opportunity Fund, Inc. | | | 6,225,491 | | | 13,434,320 | |
The Value Line Asset Allocation Fund, Inc. | | | 11,814,390 | | | 22,762,400 | |
Total Investments In Value Line Mutual Funds | | $ | 19,165,749 | | $ | 37,205,851 | |
| | | | | | | |
Other Investments: | | | | | | | |
| | | | | | | |
300 Shares of National Association of Securities Dealers, Inc. | | $ | 3,300 | | $ | 3,300 | |
| | | | | | | |
Fixed Income Investments | | | | | | | |
| | | | | | | |
| | | | | | | |
Chicago Illinois School Finance Muni Bond 5.375% due 6/08 | | | 1,244,814 | | | 1,245,408 | |
Missouri State Cert. Participation Muni Bond 5% due 6/08 | | | 3,342,565 | | | 3,338,495 | |
Treasury Note 2.625% due 11/07 | | | 5,704,898 | | | 5,623,406 | |
Federal Home Loan Bank 3.375% due 2/07 | | | 14,824,875 | | | 14,881,350 | |
Federal Home Loan Bank 2.50% due 4/06 | | | 1,000 | | | 989 | |
Weekly Adjustable Northern California Transmission Muni Bonds due 5/24 | | | 5,475,000 | | | 5,475,000 | |
Weekly Adjustable Energy Northwest WA Muni Bond due 7/18 | | | 8,500,000 | | | 8,500,000 | |
Total Fixed Income Investments | | $ | 39,093,152 | | $ | 39,064,648 | |
| | | | | | | |
Total Securities Available For Sale | | $ | 58,262,201 | | $ | 76,273,799 | |