Value Line - 10-Q quarterly report FY

 

(Exact name of registrant as specified in its charter)

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

 

In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring accruals except as noted below) considered necessary for a fair presentation. This report should be read in conjunction with the financial statements and footnotes contained in the Company's annual report on Form 10-K, dated July 15, 2004 and Form 10-K Amended, dated February 25, 2005 for the fiscal year ended April 30, 2004. Results of operations covered by this report may not be indicative of the results of operations for the entire year.

For purposes of the Consolidated Condensed Statements of Cash Flows, the Company considers all cash held at banks and short term liquid investments with an original maturity of less than three months to be cash and cash equivalents. As of January 31, 2005 and April 30, 2004, cash equivalents included $20,707,000 and $122,319,000 respectively, invested in the Value Line money market funds.

Valuation of Securities:

The Company's long-term securities available for sale portfolio, which consists of shares of the Value Line Mutual Funds and government debt securities, is accounted for in accordance with Statement of Financial Accounting Standards No.115, "Accounting for Certain Investments in Debt and Equity Securities". The securities are valued at fair market value 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 long term securities are recorded in earnings on trade date and are determined on the identified cost method.

Trading securities held by the Company are valued at fair market value 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 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 are based upon the daily net asset values of the shares as calculated by such funds.

The fair market value of the Company's fixed maturity government debt obligations are valued utilizing quoted prices at the end of each day provided by an outside pricing service.

The Company expenses advertising costs as incurred.

Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period.

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.

 

 

 

Securities held by the Company had an aggregate cost of $894,000 and a fair market value of $966,000 at January 31, 2005, and an aggregate cost of $18,854,000 and a fair market value of $19,981,000 at April 30, 2004. The proceeds from sales of trading securities, during the nine months ended January 31, 2005, were $42,205,000 and the related gains on these sales were $2,425,000. The proceeds from sales of trading securities for the same period of fiscal 2004 were $22,203,000 and the related gains on these sales were $1,312,000.

The net changes in unrealized losses of $1,055,000 for the nine months ended January 31, 2005, and the net changes in unrealized gains of $2,340,000 for the nine months ended January 31, 2004, were included in the Consolidated Condensed Statements of Income for fiscal 2005 and 2004, respectively.

The aggregate cost of the long-term securities, which are primarily invested in the Value Line mutual funds, was $19,164,000 and the fair market value was $38,517,000 at January 31, 2005. The aggregate cost of the long-term securities at April 30, 2004 was $24,502,000 and the fair market value was $46,356,000. The total gains for equity securities with net gains included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheet are $19,437,000 and $21,850,000, net of deferred taxes of $6,803,000 and $7,647,000 as of January 31, 2005 and April 30, 2004, respectively. The total losses on equity securities included in Accumulated Other Comprehensive Income for the nine months ended January 31, 2005 were $87,000, net of deferred taxes of $31,000. There were no losses on equity securities included in Accumulated Other Comprehensive Income for fiscal year ended April 30, 2004. The decrease in gross unrealized gains on these securities of $2,500,000 and the increase of $8,066,000, net of deferred taxes of $875,000 and $2,823,000 were included in shareholders' equity at January 31, 2005 and April 30, 2004, respectively.

Realized capital gains from the sales of long-term securities available for sale were $6,301,000, and $21,000, of which a $5,738,000 gain, and a $6,000 loss were reclassified out of Accumulated Other Comprehensive Income into earnings during the nine months ended January 31, 2005, and 2004, respectively. The proceeds received from the sales of these securities during the nine months ended January 31, 2005, and 2004 were $12,669,000, and $2,094,000, respectively.

Proceeds and capital gains for fiscal 2005 include $433,000 from the sale of shares of common stock, received from a vendor in a negotiated contract. An additional $74,000 is being held in escrow until January 2006.

The Company's investments in debt securities are available for sale and valued at fair market value. The aggregate cost and fair market value at January 31, 2005 for U.S. Government debt securities classified as available for sale were as follows:

The aggregate cost and fair market value at April 30, 2004 for U.S. Government debt securities classified as available for sale were as follows:

There are no gains on U.S. Government debt securities included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheets as of January 31, 2005 and April 30, 2004. The total losses on U.S. Government debt securities included in Accumulated Other Comprehensive Income were $62,000 net of deferred taxes of $22,000 as of January 31, 2005. There were no losses at April 30, 2004.

The average yield on the U.S. Government debt securities classified as available for sale at January 31, 2005 and April 30, 2004 was 1.31% and 2.59%, respectively.

 

 

Proceeds of $9,019,000 received from settlement of sales of long-term fixed income securities available for sale during the nine months of fiscal 2005, were equal to the cost of the securities. Proceeds received from settlement of sales of long-term fixed income securities available for sale during the nine months of fiscal 2004 were $62,329,000 and the related gains on sales, which were reclassified from Accumulated Other Comprehensive Income on the Balance Sheet were $591,000.

For the nine months ended January 31, 2005, and 2004, securities transactions, net also included $161,000 and $189,000, of dividend income; $199,000, and $3,160,000, of interest income; and $7,000, and $18,000 of related interest expense, respectively.

Cash payments for income taxes were $11,111,000 and $9,320,000 during the nine months ended January 31, 2005 and 2004, respectively.

Statement no. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

At January 31, 2005, and 2004, the Company held both equity securities and U.S. Government debt securities that are classified as Long Term Securities Available for Sale on the Consolidated Condensed Balance Sheets. The change in valuation of these securities, net of deferred taxes has been recorded in Accumulated Other Comprehensive Income on the Company's Balance Sheets.

The gross change in other comprehensive income during the nine months of fiscal 2005 that resulted from a decrease in unrealized gains and the deferred taxes on the change in value of equity securities classified as available for sale were $2,504,000 and $876,000, respectively. The gross change in other comprehensive income during the same period of fiscal 2004 that resulted from a decrease in unrealized gains and deferred taxes on the change in value of equity securities classified as available for sale were $7,923,000 and $2,773,000, respectively.

The gross change in other comprehensive income during the nine months of fiscal 2005 that resulted from a decrease in unrealized gains and the deferred taxes on the change in value of U.S. Government debt securities classified as available for sale were $62,000 and $22,000, respectively. The gross change in other comprehensive income during the nine months of fiscal 2004 that resulted from an increase in unrealized gains and a reclassification of the U.S. Government Debt securities from the classification held-to-maturity to available for sale and the deferred taxes on the change in value of U.S. Government debt securities were $1,991,000, and $697,000, respectively.

 

 

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 received service and distribution fees under rule 12b-1 of the Investment Company Act of 1940 (rule 12b-1) from all but two 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 also earns brokerage commission income on securities transactions executed by Value Line Securities, Inc. on behalf of the funds that are cleared on a fully disclosed basis through non-affiliated brokers. For the nine months ended January 31, 2005 and 2004, investment management fees, 12b-1 service and distribution fees and brokerage commission income amounted to $23,164,000 and $23,350,000, respectively. These amounts include service and distribution fees of $7,214,000 and $7,205,000, respectively. The related receivables from the funds for management advisory fees and 12b-1 service fees included in Receivable from affiliates were $2,526,000 and $2,448,000 at January 31, 2005 and April 30, 2004, respectively.

For the nine months ended January 31, 2005 and 2004, the Company was reimbursed $387,000 and $365,000, respectively, for payments it made on behalf of and services it provided to Arnold Bernhard and Company, Inc. ("Parent"). At January 31, 2005 and April 30, 2004, Receivable from affiliates included a receivable from the Parent of $156,000 and $70,000 respectively.

The Company computes its tax 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:

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 are primarily a result of unrealized gains on the Company's trading and long-term securities portfolios.

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. The investment management segment provides advisory services to mutual funds, institutional and individual clients as well as brokerage services for the Value Line family of mutual funds. 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 related to corporate assets, between the two reportable segments.

Disclosure of Reportable Segment Profit and Segment Assets
(in thousands)

 

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 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 based on the same transaction. On the Company's motion, that action has been transferred from Texas to New York. 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.

On April 23, 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, which was paid on May 19, 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 could enjoy the present favorable tax rates on dividends.