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-Q on 13-Sep-2013All Recent SEC Filings

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

Form 10-Q for VALUE LINE INC


13-Sep-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statement Regarding Forward-Looking Information

This report contains statements that are predictive in nature, depend upon or refer to future events or conditions (including certain projections and business trends) accompanied by such phrases as "believe", "estimate", "expect", "anticipate", "will", "intend" and other similar or negative expressions, that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, as amended. Actual results for Value Line, Inc. ("Value Line" or "the Company") may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the following:

? dependence on key personnel;

? maintaining revenue from subscriptions for the Company's digital and print published products;

? protection of intellectual property rights;

? changes in market and economic conditions, including global financial issues;

? dependence on non-voting revenues and non-voting profits interests in EULAV Asset Management, a Delaware statutory trust ("EAM" or "EAM Trust"), which serves as the investment advisor to the Value Line Funds and engages in related distribution, marketing and administrative services;

? fluctuations in EAM's assets under management due to broadly based changes in the values of equity and debt securities, redemptions by investors and other factors, and the effect these changes may have on the valuation of EAM's intangible assets;

? competition in the fields of publishing, copyright data and investment management;

? the impact of government regulation on the Company's and EAM's businesses;

? availability of free or low cost investment data through discount brokers or generally over the internet;

? terrorist attacks, cyber security attacks and natural disasters;

? other risks and uncertainties, including but not limited to the risks described in Item 1A, "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended April 30, 2013 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the period ended July 31, 2013; and other risks and uncertainties arising from time to time.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors which may involve external factors over which we may have no control or changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at our discretion, could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC's rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, current plans, anticipated actions, and future financial conditions and results may differ from those expressed in any forward-looking information contained herein.

In this report, "Value Line," "we," "us," "our" refers to Value Line, Inc. and the "Company" refers to Value Line and its subsidiaries unless the context otherwise requires.

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. EULAV Asset Management Trust ("EAM") provides the investment management services to the Value Line® Mutual Funds ("Value Line Funds"). Value Line retains a 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.

Asset Management and Mutual Fund Distribution Businesses

The business of EAM is managed by its trustees each owning 20% of the voting profits interest of EAM and by its officers subject to the direction of the trustees. The 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 Agreement, 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 three months ended July 31, 2013, the NASDAQ and the Dow Jones Industrial Average were up 8.9% and 4.5%, respectively, as compared to the combined Ranking System "Rank 1 & 2" stocks which increased 13.3%, outperforming the S&P 500 Index's increase of 5.8% during the comparable period.

The U.S. economy meandered through a somewhat uneven, but ultimately stronger, first half of calendar 2013. On the one hand, growth was constrained by fiscal austerity (the implementation of the so-called sequestrations), higher social security payroll withholdings, and the impact of widespread recessions in Europe. On the other hand, growth was supported by improving levels of consumer spending, gains in residential and nonresidential building, and rising levels of exports. This combination produced growth of 1.1% and 2.5%, respectively, in the first and second quarters of this year. The economic bulls were clearly relieved by this showing, as many had feared that June-period growth would have backtracked some, under pressure from the aforementioned sequestrations.

Now, as we look forward to the concluding six months, we sense that these sequestrations are likely to prove even less injurious than was the case in the first six months; that job growth should continue to quicken, if unevenly; that the housing recovery is likely to remain in place, notwithstanding the recent notable climb in mortgage rates; and that economic growth should return to Europe, albeit gingerly and not all that convincingly.

That said, the Federal Reserve, an enthusiastic supporter of the economic upturn via bond purchases each month, may well opt to slow down that process by later this year. In anticipation of such an adjustment, interest rates - in particular mortgage rates - are already climbing, as are Treasury yields on notes and bonds. Thus, the uneven quality of the business expansion is likely to continue. All told, this confluence of factors is likely to produce growth that is incrementally better than in the opening six months, on average, with GDP climbing by 2.0% - 2.5% during the current half. A further modest ramp up, to perhaps 2.5%, or better, is now possible in calendar 2014.

The highly accommodative monetary policies in place up to this point in the business up cycle have helped to keep intact the long and venerable bull market in equities. However, in the past number of weeks, the fear of an upcoming tapering in the aforementioned bond buying has led to a less bullish approach to stocks. In fact, the market has undergone a moderate degree of profit taking. To this point, we are not in correction territory, which is a pullback of 10%, or more, but we could be heading in that direction should the Federal Reserve prove aggressive in its tapering. Overall, we remain cautious in our approach to the equities market, sensing that stocks are now reasonably valued following the recent pullback, but not yet undervalued.

Results of Operations for the Three Months Ended July 31, 2013 and July 31, 2012

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

                                                           Three Months Ended July 31,
($ in thousands, except earnings per share)             2013            2012         Change
Income from operations                               $      469       $   1,352         -65.3 %
Revenues and profits interests from EAM Trust        $    1,769       $   1,473          20.1 %
Income from operations plus non-voting revenues
and non-voting profits interests from EAM Trust      $    2,238       $   2,825         -20.8 %
Operating expenses                                   $    8,483       $   7,586          11.8 %
Income from securities transactions, net             $       38       $      26          46.2 %
Income before income taxes                           $    2,276       $   2,851         -20.2 %
Net income                                           $    1,445       $   1,776         -18.6 %
Earnings per share                                   $     0.15       $    0.18         -16.7 %

During the three months ended July 31, 2013, the Company's net income of $1,445,000, or $0.15 per share was $331,000 or $0.03, respectively, below net income of $1,776,000, or $0.18 per share, for the three months ended July 31, 2012. Income from operations was $469,000 for the three months ended July 31, 2013 and compared to income from operations of $1,352,000 for the three months ended July 31, 2012. Income before income taxes, which is inclusive of the non-voting revenues and non-voting profits interests from EAM, was $1,769,000 for the three months ended July 31, 2013, as compared to $1,473,000 for the three months ended July 31, 2012.

Total operating revenues

                                                              Three Months Ended July 31,
($ in thousands)                                           2013            2012         Change
Investment periodicals and related publications:
    Print                                               $    4,673       $   4,900          -4.6 %
    Digital                                                  3,523           3,128          12.6 %
Total investment periodicals and related publications        8,196           8,028           2.1 %
  Copyright data fees                                          756             910         -16.9 %
Total publishing revenues                               $    8,952       $   8,938           0.2 %

Total publishing revenues from investment periodicals and related publications including copyright data fees were $8,952,000 during the three months ended July 31, 2013, which is comparable to the total publishing revenues of $8,938,000 during the three months ended July 31, 2012.

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

Sources of Subscription Sales Orders

                                                     Three Months Ended July 31,
                                                    2013                    2012
                                              Print      Digital      Print      Digital
      New Sales Orders                         23.9 %      27.6 %      16.3 %      20.4 %
      Conversion and Renewal Sales Orders      76.1 %      72.4 %      83.7 %      79.6 %
      Total Sales Orders                      100.0 %     100.0 %     100.0 %     100.0 %



                                                          As of July 31,
($ in thousands)                                2013          2012          Change

Unearned subscription revenue (current and
long term liabilities)                        $  23,427     $  24,592           -4.7 %

Investment periodicals and related publications revenues

Investment periodicals and related publications revenues increased $168,000, or 2.1% for the three months ended July 31, 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 July 31, 2013 was 5.0% above total product line circulation at July 31, 2012, reversing a long term trend. The Company has been successful in growing revenues from print and digitally-delivered investment periodicals within Institutional Sales. We have also benefited from "converting" some customers from retail to professional price services. However, Institutional Sales orders of $1,995,000 for the three months ended July 31, 2013, were $323,000 below comparable sales orders of $2,318,000, for the three months ended July 31, 2012.

Print publication revenues decreased $227,000 or 4.6% for the three months ended July 31, 2013 from fiscal 2013. Earned revenues from institutional print publications increased $126,000 or 35.6% for the three months ended July 31, 2013 as compared to the prior fiscal year. Print publications revenues from retail subscribers decreased $353,000 or 7.8% for the three months ended July 31, 2013, as compared to the prior fiscal year. Total print circulation at July 31, 2013 was 4.5% below total print circulation at July 31, 2012. Continuing factors that have contributed to the decline in the retail print 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.

Digital publications revenues increased $395,000 or 12.6% for the three months ended July 31, 2013 as compared to the prior fiscal year. Earned revenues from institutional digital publications increased $214,000 or 10.3% for the three months ended July 31, 2013, as compared to the prior fiscal year. Digital publications revenues from retail subscribers increased $181,000 or 17.1% for the three months ended July 31, 2013, as compared to the prior fiscal year. Total digital product circulation at July 31, 2013 was 31.8% above total digital product circulation at July 31, 2012.

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 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. 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. 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.

The Company believes that the volatility of the equity market and uncertain economic conditions have to some extent eroded retail investor interest in equities.

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 planned launch of our new product offerings is still expected to begin in fiscal 2014. A preview of the new equities digital product was launched during August 2013. A major data technology focus is the creation of a centralized and active database for all of Value Line's finalized, post-calculated data. In order to serve up our data for a variety of uses (new products, different Institutional Sales channels, etc.) it became apparent that all data fields must be fully defined, and a new storage/retrieval mechanism developed which was built upon current "relational" protocols.

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. The Ranking System is designed to be predictive over a six to twelve month period. For the three month period ended July 31, 2013, the combined Ranking System "Rank 1 & 2" stocks increased 13.3%, outperforming the S&P 500 Index's increase of 5.8%, during the comparable period.

During the three months ended July 31, 2013, copyright data fees decreased $154,000 or 16.9%, as compared to the prior fiscal year. As of July 31, 2013, total third party sponsored assets were attributable to four contracts for copyright data representing $2.8 billion in various products, as compared to four contracts for copyright data representing $3.3 billion in assets at July 31, 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.

Investment management fees and services - (unconsolidated)

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, as discussed below. Total assets in the Value Line Funds managed and/or distributed by EAM at July 31, 2013, were $2.2 billion, which is $212 million or 10.5% above total assets of $2.0 billion in the Value Line Funds managed by EAM at July 31, 2012.

Value Line Mutual Funds

Total Net Assets

                                                         As of July 31,
($ in millions)                                 2013          2012         Change
Variable annuity assets (GIAC)                $     481     $     455           5.7 %
All other open end equity fund assets             1,522         1,294          17.6 %
   Total equity funds                             2,003         1,749          14.5 %
Fixed income funds                                  172           205         -16.1 %
U.S. Government Money Market Fund
("USGMMF")                                            -            67        -100.0 %
   Total EAM managed net assets                   2,175         2,021           7.6 %
Daily Income Fund managed by Reich & Tang
Asset Management LLC ("Reich & Tang")                58             -           n/a
   Total net assets                           $   2,233     $   2,021          10.5 %

Shares of the variable annuity funds, Value Line Strategic Asset Management Trust ("SAM") and Value Line Centurion Fund ("Centurion") are available to the public only through the purchase of certain variable annuity and variable life insurance contracts issued by The Guardian Insurance & Annuity Company, Inc. ("GIAC").

EAM Trust - Results of operations before distribution to interest holders

The overall results of EAM's investment management operations during the three months ended July 31, 2013, before interest holder distributions, include total investment management fees earned from the Value Line Funds of $3,485,000, 12b-1 fees and other fees of $1,119,000 and other income of $2,000. For the same period, total investment management fee waivers for the Value Line Core Bond Fund were $24,000 and 12b-1 fee waivers for eight Value Line Funds were $523,000. During the three months ended July 31, 2013, EAM's net income was $343,000 after giving effect to Value Line's non-voting revenues interest of $1,598,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.

The overall results of EAM's investment management operations during the three months ended July 31, 2012, before interest holder distributions, include total investment management fees earned from the Value Line Funds of $3,080,000 and 12b-1 fees of $891,000. For the three months ended July 31, 2012, total investment management fee waivers were $181,000 and 12b-1 fee waivers were $543,000. During the three months ended July 31, 2012, EAM's net income was $158,000 after giving effect to Value Line's non-voting revenues interest of $1,394,000, but before distributions to voting interest holders and to the Company in respect of its non-voting profits interest.

As of July 31, 2013, eight of the Value Line Funds have all or a portion of the 12b-1 fees being waived, and one fund has partial investment management fee waivers in place. Although, under the terms of the EAM Declaration of Trust, the Company no longer receives or shares in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets.

The Value Line equity fund assets and fixed income fund assets represent 92.1% and 7.9%, respectively, of total fund assets under management ("AUM") as of July 31, 2013. At July 31, 2013, equity AUM increased by 14.5% and fixed income AUM decreased by 16.1% as compared to the prior fiscal year.

As of July 31, 2013, four of the six Value Line equity mutual funds, excluding SAM and Centurion, had an overall four or five star rating by Morningstar, Inc. The largest distribution channel for the Value Line Funds remains the fund supermarket platforms such as Guardian, Charles Schwab & Co., Inc., Fidelity, Pershing and E-Trade. In August 2012, the Value Line Asset Allocation Fund was added to Schwab's prestigious OneSource Select List.

Many of Value Line Funds continued to outperform their peers. Three of the eight equity funds are in the top quartile of their respective peer groups for one year and six of the eight are in the top quartile for the three year period according to Lipper. At this time last year, four were in the top quartile for one year and six were in the top quartile for three years.

As of August 1, 2013, EULAV Securities will begin to receive additional 12b-1 revenues from select Value Line Funds. Waivers were removed or reduced on two funds, in an effort to continue to expand the marketing programs. As a result, EAM committed to sponsor events in the latter portion of 2013 with its biggest platform, Schwab, in an effort to broaden and further strengthen the relationship and will be expanding the wholesaling and electronic efforts starting in the third quarter.

EAM Trust - The Company's non-voting revenues and non-voting profits interests

The Company recorded income from its non-voting revenues interest and its non-voting profits interests in EAM as follows:

                                   Three Months Ended July 31,
($ in thousands)                  2013           2012       Change
Non-voting revenues interest   $    1,598       $ 1,394        14.6 %
Non-voting profits interest           171            79       116.5 %
                               $    1,769       $ 1,473        20.1 %

The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business. EAM currently has no separately managed account clients.

Value Line operating expenses

                                      Three Months Ended July 31,
($ in thousands)                    2013            2012       Change
Advertising and promotion        $    1,043       $    812        28.4 %
Salaries and employee benefits        3,900          3,779         3.2 %
Production and distribution           1,542          1,362        13.2 %
Office and administration             1,998          1,633        22.4 %
  Total expenses                 $    8,483       $  7,586        11.8 %

Expenses within the Company are categorized into advertising and promotion, salaries and benefits, production and distribution, office and administration. Operating expenses of $8,483,000 for the three months ended July 31, 2013, increased $897,000, or 11.8%, as compared to the three months ended July 31, 2012.

Advertising and promotion

Advertising and promotion expenses during the three months ended July 31, 2013, increased $231,000 or 28.4%, as compared to the prior year period, mainly related to a $178,000 increase in direct mail costs due to the timing of direct mail campaigns with no direct mail campaign issued during June 2012. The remaining increases for the three months ended July 31, 2013, were related to increases in sales commissions, inbound telemarketing costs, and renewal solicitation costs.

Salaries and employee benefits

Salaries and employee benefits increased $121,000 or 3.2% during the three months ended July 31, 2013, as compared to fiscal 2013. Increased expenses in salaries and employee benefits were related to the timing of personnel replacements in Marketing and commissionable sales personnel in Institutional Sales and were offset by the additional capitalization of $91,000 for digital project development costs, and decreases in employee recruitment and training costs, and profit sharing expense for the three months ended July 31, 2013, as compared to the prior year.

Production and distribution

. . .

  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.