Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
VALU > SEC Filings for VALU > Form 10-K on 26-Jul-2013All Recent SEC Filings

Show all filings for VALUE LINE INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for VALUE LINE INC


26-Jul-2013

Annual Report


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help a reader understand Value Line, its operations and business factors. The MD&A should be read in conjunction with Item 1, "Business", Item 1A, "Risk Factors", and in conjunction with the consolidated financial statements and the accompanying notes contained in Item 8 of this report.

The MD&A includes the following subsections:

? Executive Summary of the Business ? Results of Operations ? Liquidity and Capital Resources ? Recent Accounting Pronouncements ? Critical Accounting Estimates and Policies

Executive Summary of the Business

The Company's primary business is producing investment periodicals and related publications and making available copyright data, including certain Proprietary Ranking System and other proprietary information, to third parties under written agreements for use in third-party managed and marketed investment products. Value Line markets under well-known brands including Value Line®, the Value Line logo®, The Value Line Investment Survey®, and The Most Trusted Name in Investment Research™. The name "Value Line" is used to describe the Company, its products, and its subsidiaries, and is a registered trademark of the Company. Prior to December 23, 2010, the date of the completion of the Restructuring Transaction (see "Restructuring of Asset Management and Mutual Fund Distribution Businesses" below), the Company provided investment management services to the Value Line® Mutual Funds ("Value Line Funds"), institutional and individual accounts and provided distribution, marketing, and administrative services to the Value Line Funds. Subsequent to the Restructuring Transaction, EAM provides the investment management services to the Value Line Funds. Value Line retains substantial non-voting revenues and non-voting profits interest in EAM.

The Company's target audiences within the investment periodicals and related publications field are individual investors, colleges, libraries, and investment management professionals. Individuals come to Value Line for complete research in one package. Institutional subscribers consist of corporations, financial professionals, colleges, and municipal libraries. Libraries and universities, offer the Company's detailed research to their patrons and students. Investment management professionals use the research and historical information in their day-to-day businesses. The Company has a dedicated department that solicits institutional subscriptions. Fees for institutional subscriptions vary by the university or college enrollment, number of users, and the number of products purchased.

Payments received for new and renewal subscriptions and the value of receivables for amounts billed to retail and institutional customers are recorded as unearned revenue until the order is fulfilled. As the subscriptions are fulfilled, the Company recognizes revenue in equal installments over the life of the particular subscription. Accordingly, the subscription fees to be earned by fulfilling subscriptions after the date of a particular balance sheet are shown on that balance sheet as unearned revenue within current and long term liabilities.

Prior to December 23, 2010, the Company's businesses consolidated into two reportable business segments. The investment periodicals and related publications (retail and institutional) and fees from copyright data including the Proprietary Ranking System information and other proprietary information consolidate into one segment called Publishing and the investment management services to the Value Line Funds and other managed accounts were consolidated into a second business segment called Investment Management. Subsequent to December 23, 2010, the date of the Restructuring Transaction, the Publishing segment constitutes the Company's only reportable business segment.

Restructuring of Asset Management and Mutual Fund Distribution Businesses

The Company completed the restructuring of its asset management and mutual fund distribution businesses (the "Restructuring Transaction") on December 23, 2010 (the "Restructuring Date") and executed the EAM Declaration of Trust (the "EAM Declaration of Trust"). As part of the Restructuring Transaction: (1) EULAV Securities, Inc. ("ESI"), a New York corporation and wholly-owned subsidiary of the Company that acted as the distributor of the Value Line Funds was restructured into EULAV Securities LLC ("ES"), a Delaware limited liability company; (2) the Company transferred 100% of its interest in ES to EULAV Asset Management LLC ("EAM LLC"), a wholly-owned subsidiary of the Company that acted as the investment adviser to the Value Line Funds and certain separate accounts;
(3) EAM LLC was converted into EAM; and (4) EAM admitted five individuals (the "Voting Profits Interest Holders"), as the initial holders of voting profits interests in EAM, with each of such individuals owning 20% of the voting profits interests of EAM, and (5) pursuant to the EAM Declaration of Trust, the Company received an interest in certain revenues of EAM and a portion of the residual profits of EAM but has no voting authority with respect to the election or removal of the trustees of EAM. The Voting Profits Interest Holders, who were selected by the independent directors of the Company, paid no consideration in exchange for their interests in EAM.

The business of EAM is managed by its trustees and by its officers subject to the direction of the trustees. The Company's non-voting revenues and non-voting profits interests in EAM entitle it to receive a range of 41% to 55% of EAM's revenues (excluding distribution revenues) from EAM's mutual fund and separate account business and 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances). The Voting Profits Interest Holders will receive the other 50% of residual profits of EAM.

Pursuant to the EAM Declaration of Trust, the Company granted EAM the right to use the Value Line name for all existing Value Line Funds and agreed to supply the Value Line Proprietary Ranking System information to EAM without charge or expense.

Business Environment

During the twelve months ended April 30, 2013, the NASDAQ and the Dow Jones Industrial Average were up 9% and 12%, respectively. The risk-averse temperament of investors continues to restrain both the Company's revenues from its research periodicals and publications and the Company's cash flows from its non-voting revenues and non-voting profits interests in EAM.

The U.S. economy has been weaving an irregular recovery path over the past year, accelerating for a time, then just as quickly losing momentum. During the third quarter of calendar 2012, the nation's gross domestic product jumped forward by 3.1%. A drawdown in inventories and a marked retreat in defense-related spending then combined to hold growth to a scant 0.4% for the calendar year. As we moved into 2013, expectations were that the economy would rebound smartly early in the year, which it did, as GDP climbed by 2.5%.

Now, some sluggishness in several industrial and consumer categories, coupled with the ill effects of the government's mandated spending reductions, or sequestrations, seem likely to pare the current quarter's growth to just 1%-2%. Encouragingly, we think these dislocations will largely, though not completely, run their course over the next few months, so that during the second half of calendar 2013, growth could well nudge back above 2%.

Unfortunately, notwithstanding the noteworthy recovery in the housing market, indications that employment will continue to track higher, and the seeming commitment of the Federal Reserve to furthering the business expansion via exceptionally accommodative monetary policies, there is every likelihood that this three steps forward, two steps back growth progression will remain in place for the balance of this year.

On the whole, however, we sense that growth will accelerate modestly and perhaps more consistently in 2014, and that this upturn, underpinned by benign inflation and historically low interest rates, will remain in force for several years thereafter. All told, this should be a solid investment backdrop in which to gradually accumulate equities.

Results of Operations for Fiscal Years 2013, 2012 and 2011

The following table illustrates the Company's key components of revenues and
expenses.

                                                          Fiscal Years Ended April 30,
($ in thousands, except earnings per share)             2013           2012          2011
Income from operations                               $    4,120      $   5,338     $   8,533
Revenues and profits interests from EAM Trust        $    6,260      $   5,890     $   2,355
Income from operations plus non-voting revenues
and non-voting profits interests from EAM Trust      $   10,380      $  11,228     $  10,888
Operating expenses                                   $   31,720      $  31,271     $  40,134
Gain from deconsolidation of subsidiaries                     -              -     $  50,510
Income from securities transactions, net             $      126      $      70     $      65
Income before income taxes                           $   10,506      $  11,298     $  61,463
Net income                                           $    6,619      $   6,925     $  37,782
Earnings per share                                   $     0.67      $    0.70     $    3.79

During the twelve months ended April 30, 2013, the Company's net income of $6,619,000, or $0.67 per share was $306,000 or 4.4% below net income of $6,925,000, or $0.70 per share, for the twelve months ended April 30, 2012. Income from operations was $4,120,000 for the twelve months ended April 30, 2013 and compares to income from operations of $5,338,000 for the twelve months ended April 30, 2012. Income before income taxes, which is inclusive of the non-voting revenues and non-voting profits interests from EAM, was $10,506,000 for the twelve months ended April 30, 2013, as compared to $11,298,000 for the twelve months ended April 30, 2012.

During the twelve months ended April 30, 2012, the Company's net income of $6,925,000, or $0.70 per share, was $30,857,000 or 82% below net income of $37,782,000, or $3.79 per share, for the twelve months ended April 30, 2011. The net income of the Company during the twelve months ended April 30, 2011 included $50,510,000 of pre-tax accounting (non-cash) gain and applicable deferred income taxes of $19,462,000 on the non-cash gain from deconsolidation of Value Line's former investment management subsidiaries, EAM LLC and ESI.

Income from operations of $5,338,000 for the twelve months ended April 30, 2012, did not include the non-voting revenues and non-voting profits interests from EAM of $5,890,000, while income from operations for the twelve months ended April 30, 2011 of $8,533,000 included $10,693,000 of advisory management fees and service distribution fees from the former Value Line subsidiaries, EAM LLC and ESI, that performed the operations of the investment management business prior to deconsolidation of these subsidiaries on December 23, 2010. During the twelve months ended April 30, 2011, the net income and income from operations included restructuring expenses of $3,764,000, non-cash post-employment compensation expense of $1,770,000 related to the grant of a voting profits interest in EAM to a former employee, $914,000 of expenses for operating lease exit costs related to the relocation of the EAM operations and a $1,767,000 reduction in the estimated cost of administration of a fund created as part of the Settlement with the SEC during fiscal 2010 ("Fair Fund"). Income before income taxes, which is inclusive of the non-voting revenues and non-voting profits interests from EAM through April 30, 2012, was $11,298,000 as compared to $61,463,000 for the twelve months ended April 30, 2011, which included the aforementioned gain on Restructuring Transaction of $50,510,000.

Total operating revenues

                                                            Fiscal Years Ended April 30,
                                2013                    2012                    2011                       Change
($ in thousands)             $           %           $           %           $           %        13 vs. 12       12 vs. 11
Investment periodicals
and related
publications:
    Print                $ 19,027                $ 20,366                $ 21,625                       -6.6 %          -5.8 %
    Digital                12,913                  12,652                  12,781                        2.1 %          -1.0 %
Total investment
periodicals and
related publications       31,940       89.1 %     33,018       90.2 %     34,406       70.7 %          -3.3 %          -4.0 %
  Copyright data fees       3,900       10.9 %      3,591        9.8 %      3,568        7.3 %           8.6 %           0.6 %
Total publishing
revenues                   35,840                  36,609                  37,974                       -2.1 %          -3.6 %
  Investment
management                      -          -            -          -       10,693       22.0 %           n/a          -100.0 %
    Total revenues       $ 35,840                $ 36,609                $ 48,667                       -2.1 %         -24.8 %

Total publishing revenues from investment periodicals and related publications including copyright data fees were $35,840,000 during the twelve months ended April 30, 2013, which is 2.1% below the total publishing revenues of $36,609,000 from fiscal 2012.

Total publishing revenues from investment periodicals and related publications including copyright data fees were $36,609,000 during the twelve months ended April 30, 2012, which was 3.6% below the total publishing revenues from fiscal 2011. As a result of the completion of the Restructuring Transaction on December 23, 2010, investment management activity for the twelve months ended April 30, 2013, April 30, 2012, and for the period from December 23, 2010 through April 30, 2011 during fiscal 2011, is reported as non-voting revenues and non-voting profits interests in EAM and is not included in operating revenues.

Within investment periodicals and related publications, subscription sales orders are derived from print and digital products. The following chart illustrates the changes in the sales orders associated with print and digital subscriptions.

Sources of Subscription Sales Orders

                                                   Fiscal Years Ended April 30,
                                  2013                         2012                         2011
                          Print        Digital         Print        Digital         Print        Digital
New Sales Orders             19.0 %         24.2 %        16.8 %         18.6 %        13.0 %         21.0 %
Conversion and
Renewal Sales Orders         81.0 %         75.8 %        83.2 %         81.4 %        87.0 %         79.0 %
Total Sales Orders          100.0 %        100.0 %       100.0 %        100.0 %       100.0 %        100.0 %



                                                                As of April 30,
($ in thousands)                                       2013          2012          Change

Unearned subscription revenue (current and long
term liabilities)                                    $  24,709     $  25,995           -4.9 %

Investment periodicals and related publications revenues

Investment periodicals and related publications revenues decreased 3.3% for the twelve months ended April 30, 2013, as compared to the prior fiscal year. The Company continued its efforts to attract new subscribers through various marketing channels, primarily direct mail and the internet for retail users, and by the efforts of our sales personnel in the institutional market. Total product line circulation at April 30, 2013 was 0.6% above total product line circulation at April 30, 2012, reversing a long term trend. Continuing factors that have contributed to the decline in the investment periodicals and related publications revenues include competition in the form of free or low cost investment research on the Internet and research provided by brokerage firms at no direct cost to their clients. The Company has been successful in growing revenues from digitally-delivered investment periodicals within Institutional Sales. Institutional Sales orders of $12,001,000 for the twelve months ended April 30, 2013, were $1,415,000 or 13.4% above comparable sales orders of $10,586,000, for the twelve months ended April 30, 2012. This growth continues a positive trend for Institutional Sales, but is not sufficient to wholly offset the lost revenues from retail subscribers. We have also benefited from "converting" some customers from retail to professional price services.

Print publication revenues decreased $1,339,000, or 6.6%, for the twelve months ended April 30, 2013 from fiscal 2012 for the reasons described earlier. Earned revenues from institutional print publications increased $550,000 or 49.2%, for the twelve months ended April 30, 2013 as compared to the prior fiscal year. Print publications revenues from retail subscribers decreased $1,889,000 or 9.8%, for the twelve months ended April 30, 2013, as compared to the prior fiscal year. Print products circulation declined 6.3% as of April 30, 2013 as compared to print circulation at April 30, 2012.

Digital publications revenues increased $261,000, or 2.1%, for the twelve months ended April 30, 2013 as compared to the prior fiscal year. Earned revenues from institutional digital publications increased $349,000 or 4.2%, for the twelve months ended April 30, 2013, as compared to the prior fiscal year. Digital publications revenues from retail subscribers decreased $88,000 or 2.1%, for the twelve months ended April 30, 2013, as compared to the prior fiscal year. Digital products circulation increased 21.7% as of April 30, 2013 as compared to digital circulation at April 30, 2012.

Investment periodicals and related publications revenues were down $1,388,000, or 4%, for the twelve months ended April 30, 2012, as compared to fiscal 2011. Total product line circulation at April 30, 2012 was 4.6% lower than total product line circulation at April 30, 2011. Gross institutional sales orders of $10,586,000 for the twelve months ended April 30, 2012, were $838,000 or 9% above comparable sales orders of $9,748,000, for the twelve months ended April 30, 2011.

Print publication revenues decreased $1,259,000, or 6%, for the twelve months ended April 30, 2012 from fiscal 2011. For the twelve months ended April 30, 2012, earned revenues from institutional print publications increased $182,000 or 19% as compared to fiscal 2011. For the twelve months ended April 30, 2012, print publications revenues from retail subscribers decreased $1,441,000 or 7%, as compared to fiscal 2011. Print circulation decreased 6.8% as of April 30, 2012 as compared to print circulation at April 30, 2011.

Digital publications revenues decreased $129,000, or 1%, for the twelve months ended April 30, 2012 from fiscal 2011. For the twelve months ended April 30, 2012, earned revenues from institutional digital publications increased $59,000 or 1% as compared to fiscal 2011. For the twelve months ended April 30, 2012, digital publications revenues from retail subscribers decreased $188,000 or 4%, as compared to fiscal 2011.

The Company has relied more on its institutional sales marketing efforts, and the increase in institutional combined print and digital revenues is a direct result of a focused effort to sell to colleges, libraries and corporate/investment adviser accounts. The decrease in digital and print retail publications revenues is primarily attributable to the decrease in circulation within the Company's products.

The majority of the Company's subscribers have traditionally been individual investors who generally receive printed publications via U.S. Mail on a weekly basis. Consistent with the experience of other print publishers in many fields, the Company has found that its roster of customers has been declining as individuals migrate to various digital services. A modest number of customers who do not qualify for retail prices have chosen to cancel their subscriptions, while the rest have converted to institutional services, at higher prices.

Individual investors interested in digitally-delivered investment information have access to free equity research from many sources. For example, most retail broker-dealers with computerized trading services offer their customers free or low cost research services that compete with the Company's services. Revenues from the Company's current retail online services have also declined because many competing products offer more extensive interactive features.

Notably in the fourth quarter of fiscal 2013, the Company has increased its efforts on renewing non-institutional subscriptions by increasing the number of renewal notifications including increases in e-mail and telemarketing efforts.

The Company believes that the volatility of the equity market and the sluggish economic recovery have to some extent eroded retail investor interest in equities. The Company also believes that the negative trend in overall subscription revenue could continue until new products have been developed and marketed and the Company has implemented and adapted customer-contact methods better suited to their changing needs.

The Company has established the goal of developing competitive digital products and marketing them effectively through traditional as well as internet and mobile channels. Towards that end, the Company has been modernizing legacy information technology systems. The Company is not able to predict when these efforts will result in the launch of new products or whether they will be successful in reversing the trend of declining retail publishing revenues.

During the latter part of fiscal 2012, there were a number of technology advances effected in advance of the planned launch of our new product offerings expected to begin in fiscal 2014. In December 2011, the new fulfillment system was placed in service that gives the Company the ability to perform real time order processing and grant immediate access to our digital products, as well as offering multi-tiered entitlements which will come into play in fiscal 2014 with the Company's new product offerings. In December 2011, a new e-commerce platform and a Single Sign On module were launched which directly leverage the new fulfillment system's capabilities for new web order entry and customers' access to their products via a single username and password. Both of these services are a substantial progression from the previous solutions.

In addition, the Company launched a new institutional sales website ValueLinePro.com during March 2012. ValueLinePro.com provides a dedicated Internet destination for investment advisers, portfolio managers, corporate professionals and library patrons who seek to learn how Value Line's proprietary research tools can help them research stocks, mutual funds, options, convertible securities and exchange traded funds ("ETFs"). The site thoroughly describes each of the Company's customized products available to institutions and investment professionals. Targeted digital advertising programs have been a part of the Company's marketing efforts to institutions, generating additional sales leads for our team of experienced sales executives and support personnel.

Copyright data fees

The Value Line Proprietary Ranking System information (the "Ranking System"), a component of the Company's flagship product, The Value Line Investment Survey, is also utilized in the Company's copyright data business. The Ranking System is also required to be made available to EAM for specific uses without charge or expense. The Ranking System is designed to be predictive over a six to twelve month period. For the six and twelve months ended April 30, 2013, the combined Ranking System Timeliness™ "Rank 1 & 2" stocks increased by 16.8% and 16.0%, respectively, allowing for weekly changes in Ranks, outperforming an increase of 13.1% and 14.3% in the S&P 500 Index during the comparable periods, respectively.

During the twelve months ended April 30, 2013, copyright data fees increased $309,000, or 8.6%, as compared to the prior fiscal year. As of April 30, 2013, total third party sponsored assets were attributable to four contracts for copyright data representing $2.65 billion in various products, as compared to four contracts and $3.43 billion in assets at April 30, 2012. The decrease in assets managed by third party sponsors resulted from a shift in assets in one of the underlying portfolios to a new subadvisor which was beyond Value Line's control. The Company believes the growth of this part of the business is dependent upon the desire of third parties to use the Value Line trademarks and proprietary research for their products. This market has become significantly more competitive as a result of product diversification and increased use of indices by portfolio managers. Management is focusing on potential channels for the copyright data products, while maintaining good cooperation with current third party sponsors. However, the Company cannot predict if these efforts will be successful in reversing the trend of declining future revenues and assets managed by third party sponsors.

During the twelve months ended April 30, 2012, copyright data fees of $3,591,000 were 1% above copyright data fees for fiscal 2011. As of April 30, 2012, total third party sponsored assets were attributable to four contracts for copyright data representing $3.4 billion in various products, as compared to four contracts and $3.5 billion in assets at April 30, 2011, representing a 3% decrease in assets.

Investment management fees and services - (unconsolidated)

As of the Restructuring Date, the Company deconsolidated its asset management and mutual fund distribution businesses and its interest in these businesses was restructured as a non-voting revenues and non-voting profits interests in EAM. Accordingly, the Company no longer reports this operation as a separate business segment, although it still maintains a significant interest in the cash flows generated by this business and will receive ongoing payments in respect of its non-voting revenues and non-voting profits interests. Total assets in the Value Line Funds managed and/or distributed by EAM at April 30, 2013, were $2.19 billion, which is $73 million or 3.5% above total assets of $2.11 billion in the Value Line Funds managed by EAM at April 30, 2012. Total assets in the Value Line Funds managed by EAM at April 30, 2012, of $2.11 billion were 5.9% below total assets of $2.24 billion in the Value Line Funds managed by EAM at April 30, 2011. Although sales and inflows for the Value Line Equity Funds are up 20% during fiscal 2013 and 183% during fiscal 2012, the Value Line Funds continue to experience net redemptions for the last three fiscal years albeit at a much slower rate.

The following table shows the change in assets for the past three fiscal years including sales (inflows), redemptions (outflows), dividends and capital gain distributions, and market value changes. Inflows for sales, and outflows for redemptions reflect decisions of individual investors. The table also illustrates the assets within the Value Line Funds broken down into equity funds, variable annuity funds and fixed income funds as of April 30, 2013, 2012 and 2011.

Value Line Mutual Funds

Total Net Assets

Asset Flows                                                                                      Fiscal Years Ended April 30,
                                                                                                                                     2013         2012
                                                                                                                                     vs.          vs.
. . .
  Add VALU to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for VALU - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.