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

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Sep 11, 2009
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Value Line Inc. (VALU, Financial) filed Quarterly Report for the period ended 2009-07-31.

VALUE LINE INC.'s primary businesses are producing investment related periodical publications through its wholly-owned subsidiary Value Line Publishing Inc. and providing investment advisory services to mutual funds institutions and individual clients. Value Line Inc. has a market cap of $316.6 million; its shares were traded at around $31.72 with a P/E ratio of 13.7 and P/S ratio of 4.5. The dividend yield of Value Line Inc. stocks is 2.5%. Value Line Inc. had an annual average earning growth of 9.8% over the past 5 years.

Highlight of Business Operations:

For the three months ended July 31, 2009 the Company s net loss of $31,580,000 or $3.16 per share was $36,642,000 below net income of $5,062,000 or $0.51 per share for the three months ended July 31, 2008. Operating loss of $42,786,000 for the three months ended July 31, 2009 was $50,251,000 below operating income of $7,465,000 last fiscal year. The operating and net losses of the Company were a result of the Company recording a provision for settlement of $47,706,000 for potential settlement and related costs associated with the Securities and Exchange (“SEC”) investigation. Please refer to Note 9-Contingencies within the notes to Consolidated Condensed Financial Statements. With this provision for settlement, shareholders equity of $47,313,000 at July 31, 2009 was 46% lower than shareholders equity of $87,711,000 at July 31, 2008.

Investment periodicals and related publications revenues were down $1,016,000 or 10% for the three months ended July 31, 2009 as compared to the first quarter of 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 continues to decline. 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 cost to their clients. As of July 31, 2009, total company-wide circulation has dropped approximately 12% compared to the previous fiscal year. Overall renewal rates for the flagship product, The Value Line Investment Survey are 70%, down slightly from 71% a year earlier. The Company is not adding enough new subscribers to offset the subscribers that choose not to renew. The Company has been fortunate that electronic investment periodicals revenues from institutional sales have increased $161,000 or 10% from the previous year. Fiscal year institutional sales through July 31, 2009 were $1,999,000, up $435,000 or 28% from the previous fiscal year.

As a result of the decline in assets under management occurring over the course of the year, investment management fees and distribution services revenues for the three months ended July 31, 2009 were down $3,495,000 or 43% below the prior fiscal year. Management fees for the three months ended July 31, 2009 were down $2,488,000 or 41% as compared to the prior fiscal year. There was a net decrease of $797,000 or 44% in distribution services revenues (12b-1 fees). During the period, contractual fee waivers have existed for most of the Value Line Funds. For the three months ended July 31, 2009 and 2008, 12b-1 fee waivers were $674,000 and $873,000, respectively. For the three months ended July 31, 2009 and 2008, management fee waivers were $192,000 and $53,000, respectively. Twelve of the fourteen funds have all or a portion of or the full amount of the 12b-1 fees being waived and five of the fourteen funds have partial management fee waivers in place. With very limited exception, the Company and its subsidiaries have no right to recoup the previously waived management fees and 12b-1 fees. Separately managed accounts revenues decreased $209,000 or 80% for the three months ended July 31, 2009 as compared to the three months ended July 31, 2008 primarily due to market decline in the portfolios and the loss of the New York State Common Retirement Fund account last fiscal year.

The Company s separately managed accounts as of July 31, 2009 have $49 million in assets, down from $210 million at July 31, 2008. Of the $49 million, $24 million is affiliated with the Parent. 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. As of April 30, 2009, the Company lost a $93 million account from the New York State Common Retirement Fund as their five-year contract expired and was not renewed based on a reallocation of investments by the state. The Company did not add any new accounts thus far during the fiscal year 2010.

Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, and office and administration. For fiscal 2010, expenses include a Provision for Settlement of $47,706,000, which is described earlier in Results of Operations and in Note 9 of the Consolidated Condensed Financial Statements. Operating expenses of $57,574,000 for the three months ended July 31, 2009 were $44,826,000 above operating expenses of $12,748,000 last fiscal year.

Advertising and promotion expenses for the three months ended July 31, 2009 decreased $1,161,000 as compared to the three months ended July 31, 2008. Within the investment management segment, supermarket and Guardian (GIAC) platform expenses associated with the distribution of the mutual funds decreased $544,000 or 27% below the prior year due to the decline in assets under management. In fiscal 2010, the Company reduced print advertising promoting the mutual funds due to the volatility in the marketplace. For the three months ended July 31, 2009, media advertising decreased $333,000, from the three months ended July 31, 2008. Within the publishing segment, costs associated with direct mail decreased $130,000 or 28% below last fiscal year, due to increased efficiency in the selection of direct mail lists and a reduction in the overall number of pieces mailed year to year.

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