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Value Line Inc. Reports Operating Results (10-Q)

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Sep 14, 2010
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Value Line Inc. (VALU, Financial) filed Quarterly Report for the period ended 2010-07-31.

Value Line Inc. has a market cap of $144.1 million; its shares were traded at around $14.44 with and P/S ratio of 2.5. The dividend yield of Value Line Inc. stocks is 5.5%.VALU is in the portfolios of Jeff Auxier of Auxier Focus Fund, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

For the three months ended July 31, 2010, the Company s net income of $2,317,000 or $0.23 per share compared to the net loss of $31,580,000 or $3.16 per share for the three months ended July 31, 2009. Operating income of $3,546,000 for the three months ended July 31, 2010 compared to an operating loss of $42,786,000 for the three months ended July 31, 2009. The operating and net losses of the Company during the first quarter of the prior fiscal year were a result of the Company recording a provision for the SEC Settlement of $47,706,000. Shareholders equity of $21,759,000 at July 31, 2010 was 54% lower than shareholders equity of $47,313,000 at July 31, 2009 primarily as a result of the payment of a special $3.00 per share dividend in April 2010.

Investment periodicals and related publications revenues were down $704,000 or 8% for the three months ended July 31, 2010 as compared to the prior fiscal year. While the Company continues to attract new subscribers through various marketing channels, primarily direct mail and the Internet, total product line circulation remains weaker than in past years. 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. As of July 31, 2010, total company-wide circulation has declined 9% compared to the previous fiscal year. Overall renewal rates for the flagship product, The Value Line Investment Survey, are 70%, the same as a year earlier, although the Company is not adding enough new subscribers to offset the subscribers that choose not to renew to the flagship product and other Value Line products. The Company has been successful in growing electronic investment periodicals within institutional sales, with earned revenues increasing $130,000 or 7% from the previous year. Fiscal year gross institutional sales through July 31, 2010 were $2,201,000, up $202,000 or 10% from the previous fiscal year. This continues to be a positive growth trend, but not sufficient to wholly offset the lost revenues from retail subscribers.

Overall fund assets at July 31, 2010 decreased $395,000,000 since the first quarter end of the previous fiscal year primarily as a result of net redemptions from the Value Line equity mutual funds and a decline in the US Government Money Market Fund that resulted primarily from the Company s payment of approximately $44 million to settle the SEC matter in November 2009 and $30 million for the special $3.00 per share dividend paid to all the Company s shareholders during April 2010. Total net assets in the Value Line Funds have fallen from $2.3 billion at fiscal 2010 year end to $2.1 billion at July 31, 2010 primarily as a result of the decline in the market and net redemptions in certain Value Line equity funds.

As a result of a 13% decline in average assets under management for the three months ended 2010 as compared to the previous year, investment management fees and distribution services revenues for the three months ended July 31, 2010 were down $485,000 or 10% below the prior fiscal year. Management fees for the three months ended July 31, 2010 were down $382,000 or 11% as compared to the prior fiscal year. There was a net decrease of $101,000 or 10% in distribution services revenues (12b-1 fees). During the period, contractual fee waivers have applied to most of the Value Line Funds. For the three months ended July 31, 2010 and 2009, 12b-1 fee waivers were $620,000 and $668,000, respectively. For the three months ended July 31, 2010 and 2009, management fee waivers were $190,000 and $198,000, respectively. Twelve of the fourteen funds have all or a portion of the 12b-1 fees being waived and five of the fourteen funds have partial management fee waivers in place. With limited exception, the Company and its subsidiaries have no right to recoup the previously waived management fees and 12b-1 fees.

Separately managed account revenues decreased $3,000 or 5% for the three months ended July 31, 2010 as compared to the three months ended July 31, 2009. The Company s separately managed accounts as of July 31, 2010 have $44 million in assets, a decrease of $5 million or 11% since July 31, 2009. Of the $44 million, $21 million is affiliated with AB&Co. Assets within the separately managed accounts are held at third party custodians, are subject to the terms of each advisory agreement and do not have any advance notice requirement for withdrawals, although they have a 30 day advance notice requirement for termination of the account. The Company did not add any new accounts during the fiscal year 2011 and lost one account in August 2010.

Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, and office and administration. Operating expenses of $10,063,000 for the three months ended July 31, 2010 were $47,511,000 or 83% below operating expenses of $57,574,000 last fiscal year. During the three months ended July 31, 2010, expenses included costs associated with the Company s restructure of its asset management business segment. During the three months ended July 31, 2009, expenses included a provision for the SEC Settlement of $47,706,000. Excluding expenses associated with the restructure in fiscal 2011 and the provision for the SEC Settlement last fiscal year, operating expenses for the three months ended July 31, 2010 were 12% below operating expenses for the three months ended July 31, 2009.

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