x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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VALUE LINE, INC. | ||
(Exact name of registrant as specified in its charter) |
New York | 13-3139843 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
485 Lexington Avenue, New York, New York | 10017-2630 | |||||
(Address of principal executive offices) | (Zip Code) |
(212) 907-1500 | ||
(Registrant’s telephone number, including area code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x | Smaller reporting company o |
(Do not check if a smaller reporting company) |
Class | Outstanding at March 10, 2014 |
Common stock, $0.10 par value | 9,817,929 Shares |
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Page No. | ||||
PART I. FINANCIAL INFORMATION | ||||
Item 1. | Consolidated Condensed Financial Statements | |||
Consolidated Condensed Balance Sheets as of January 31, 2014 and April 30, 2013 | 3 | |||
Consolidated Condensed Statements of Income for the three and nine months ended January 31, 2014 and January 31, 2013 | 4 | |||
Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended January 31, 2014 and January 31, 2013 | 5 | |||
Consolidated Condensed Statements of Cash Flows for the nine months ended January 31, 2014 and January 31, 2013 | 6 | |||
Consolidated Condensed Statement of Changes in Shareholders’ Equity for the nine months ended January 31, 2014 | 7 | |||
Consolidated Condensed Statement of Changes in Shareholders’ Equity for the nine months ended January 31, 2013 | 8 | |||
Notes to Consolidated Condensed Financial Statements | 9 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29 | ||
Item 4. | Controls and Procedures | 31 | ||
PART II. OTHER INFORMATION | ||||
Item 1. | Legal Proceedings | 31 | ||
Item 1A. | Risk Factors | 31 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 32 | ||
Item 5. | Other Information | 32 | ||
Item 6. | Exhibits | 32 | ||
Signatures | 33 |
January 31, | April 30, | |||||||
2014 | 2013 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents (including short term investments of $3,858 and $6,312, respectively) | $ | 4,808 | $ | 6,840 | ||||
Securities available-for-sale | 9,160 | 6,682 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $28 and $17, respectively | 1,435 | 1,278 | ||||||
Prepaid expenses and other current assets | 1,280 | 1,646 | ||||||
Deferred income taxes | 463 | 227 | ||||||
Total current assets | 17,146 | 16,673 | ||||||
Long term assets: | ||||||||
Investment in EAM Trust | 57,900 | 57,511 | ||||||
Property and equipment, net | 3,863 | 3,930 | ||||||
Capitalized software and other intangible assets, net | 6,791 | 6,227 | ||||||
Total long term assets | 68,554 | 67,668 | ||||||
Total assets | $ | 85,700 | $ | 84,341 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 2,289 | $ | 2,460 | ||||
Accrued salaries | 1,092 | 1,200 | ||||||
Dividends payable | 1,474 | 1,481 | ||||||
Accrued taxes on income | 983 | 180 | ||||||
Unearned revenue | 20,961 | 22,073 | ||||||
Total current liabilities | 26,799 | 27,394 | ||||||
Long term liabilities: | ||||||||
Unearned revenue | 3,038 | 2,636 | ||||||
Deferred charges | 417 | - | ||||||
Deferred income taxes | 22,359 | 21,326 | ||||||
Total long term liabilities | 25,814 | 23,962 | ||||||
Total liabilities | 52,613 | 51,356 | ||||||
Shareholders’ Equity: | ||||||||
Common stock, $0.10 par value; authorized 30,000,000 shares; issued 10,000,000 shares | 1,000 | 1,000 | ||||||
Additional paid-in capital | 991 | 991 | ||||||
Retained earnings | 32,974 | 32,315 | ||||||
Treasury stock, at cost (178,645 and 123,572 shares, respectively) | (2,081 | ) | (1,572 | ) | ||||
Accumulated other comprehensive income, net of tax | 203 | 251 | ||||||
Total shareholders’ equity | 33,087 | 32,985 | ||||||
Total liabilities and shareholders’ equity | $ | 85,700 | $ | 84,341 |
3 |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues: | ||||||||||||||||
Investment periodicals and related publications | $ | 8,554 | $ | 7,938 | $ | 25,056 | $ | 23,793 | ||||||||
Copyright data fees | 720 | 1,008 | 2,183 | 2,900 | ||||||||||||
Total revenues | 9,274 | 8,946 | 27,239 | 26,693 | ||||||||||||
Expenses: | ||||||||||||||||
Advertising and promotion | 1,030 | 1,017 | 3,188 | 2,916 | ||||||||||||
Salaries and employee benefits | 4,155 | 3,683 | 12,020 | 11,096 | ||||||||||||
Production and distribution | 1,737 | 1,422 | 4,798 | 4,236 | ||||||||||||
Office and administration | 1,344 | 1,736 | 5,110 | 5,085 | ||||||||||||
Total expenses | 8,266 | 7,858 | 25,116 | 23,333 | ||||||||||||
Income from operations | 1,008 | 1,088 | 2,123 | 3,360 | ||||||||||||
Revenues and profits interests in EAM Trust | 1,974 | 1,625 | 5,597 | 4,627 | ||||||||||||
Income from securities transactions, net | 70 | 37 | 142 | 93 | ||||||||||||
Income before income taxes | 3,052 | 2,750 | 7,862 | 8,080 | ||||||||||||
Income tax provision | 1,026 | 1,003 | 2,775 | 2,985 | ||||||||||||
Net income | $ | 2,026 | $ | 1,747 | $ | 5,087 | $ | 5,095 | ||||||||
Earnings per share, basic & fully diluted | $ | 0.21 | $ | 0.18 | $ | 0.52 | $ | 0.52 | ||||||||
Weighted average number of common shares | 9,826,336 | 9,884,308 | 9,845,925 | 9,891,826 |
4 |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income | $ | 2,026 | $ | 1,747 | $ | 5,087 | $ | 5,095 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Change in unrealized gains on securities, net of taxes | (87 | ) | 19 | (48 | ) | 46 | ||||||||||
Other comprehensive income (loss) | (87 | ) | 19 | (48 | ) | 46 | ||||||||||
Comprehensive income | $ | 1,939 | $ | 1,766 | $ | 5,039 | $ | 5,141 |
5 |
For the Nine Months Ended | ||||||||
January 31, | ||||||||
2014 | 2013 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 5,087 | $ | 5,095 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,514 | 1,136 | ||||||
Non-voting revenues interest in EAM Trust | (5,028 | ) | (4,280 | ) | ||||
Non-voting profits interest in EAM Trust | (569 | ) | (347 | ) | ||||
Deferred rent | 617 | - | ||||||
Deferred income taxes | 632 | 673 | ||||||
Changes in operating assets and liabilities: | ||||||||
Unearned revenue | (710 | ) | (1,962 | ) | ||||
Reserve for settlement | (141 | ) | (23 | ) | ||||
Operating lease exit obligation | (36 | ) | (329 | ) | ||||
Accounts payable & accrued expenses | (194 | ) | (206 | ) | ||||
Accrued salaries | (108 | ) | (116 | ) | ||||
Accrued taxes on income | 995 | 484 | ||||||
Prepaid and refundable income taxes | - | 779 | ||||||
Prepaid expenses and other current assets | 366 | 67 | ||||||
Accounts receivable | (157 | ) | (309 | ) | ||||
Total adjustments | (2,819 | ) | (4,433 | ) | ||||
Net cash provided by operating activities | 2,268 | 662 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of securities classified as available-for-sale | (2,553 | ) | (1,200 | ) | ||||
Distributions received from EAM Trust | 5,208 | 3,493 | ||||||
Acquisition of property and equipment | (137 | ) | (108 | ) | ||||
Expenditures for capitalized software | (1,874 | ) | (1,546 | ) | ||||
Net cash provided by investing activities | 644 | 639 | ||||||
Cash flows from financing activities: | ||||||||
Purchase of treasury stock at cost | (509 | ) | (147 | ) | ||||
Dividends paid | (4,435 | ) | (4,453 | ) | ||||
Net cash used in financing activities | (4,944 | ) | (4,600 | ) | ||||
Net change in cash and cash equivalents | (2,032 | ) | (3,299 | ) | ||||
Cash and cash equivalents at beginning of year | 6,840 | 12,042 | ||||||
Cash and cash equivalents at end of period | $ | 4,808 | $ | 8,743 |
6 |
Consolidated Condensed Statement of Changes in Shareholders’ Equity
For the Nine Months Ended January 31, 2014
(in thousands, except share amounts)
(unaudited)
Common stock | Additional paid-in | Treasury Stock | Retained | Accumulated Other Comprehensive | ||||||||||||||||||||||||||||
Shares | Amount | capital | Shares | Amount | earnings | income/(loss) | Total | |||||||||||||||||||||||||
Balance at April 30, 2013 | 10,000,000 | $ | 1,000 | $ | 991 | (123,572 | ) | $ | (1,572 | ) | $ | 32,315 | $ | 251 | $ | 32,985 | ||||||||||||||||
Net income | 5,087 | 5,087 | ||||||||||||||||||||||||||||||
Change in unrealized gains on securities, net of taxes | (48 | ) | (48 | ) | ||||||||||||||||||||||||||||
Purchase of treasury stock | (55,073 | ) | (509 | ) | (509 | ) | ||||||||||||||||||||||||||
Dividends declared | (4,428 | ) | (4,428 | ) | ||||||||||||||||||||||||||||
Balance at January 31, 2014 | 10,000,000 | $ | 1,000 | $ | 991 | (178,645 | ) | $ | (2,081 | ) | $ | 32,974 | $ | 203 | $ | 33,087 |
7 |
Consolidated Condensed Statement of Changes in Shareholders’ Equity
For the Nine Months Ended January 31, 2013
(in thousands, except share amounts)
(unaudited)
Common stock | Additional paid-in | Treasury Stock | Retained | Accumulated Other Comprehensive | ||||||||||||||||||||||||||||
Shares | Amount | capital | Shares | Amount | earnings | income/(loss) | Total | |||||||||||||||||||||||||
Balance at April 30, 2012 | 10,000,000 | $ | 1,000 | $ | 991 | (103,619 | ) | $ | (1,390 | ) | $ | 31,628 | $ | 85 | $ | 32,314 | ||||||||||||||||
Net income | 5,095 | 5,095 | ||||||||||||||||||||||||||||||
Change in unrealized gains on securities, net of taxes | 46 | 46 | ||||||||||||||||||||||||||||||
Purchase of treasury stock | (16,330 | ) | (147 | ) | (147 | ) | ||||||||||||||||||||||||||
Dividends declared | (4,451 | ) | (4,451 | ) | ||||||||||||||||||||||||||||
Balance at January 31, 2013 | 10,000,000 | $ | 1,000 | $ | 991 | (119,949 | ) | $ | (1,537 | ) | $ | 32,272 | $ | 131 | $ | 32,857 |
8 |
Notes to Consolidated Condensed Financial Statements
January 31, 2014
(Unaudited)
In accordance with FASB’s Topic 810, the assets, liabilities, and results of operations of subsidiaries in which the Company has a controlling interest have been consolidated. All significant intercompany accounts and transactions have been eliminated in consolidation. On December 23, 2010, the Company completed the deconsolidation of the investment management related affiliates (the “Restructuring Transaction”) in accordance with FASB’s Topic 810. As part of the Restructuring Transaction, the Company received a significant non-voting revenues interest (excluding distribution revenues) and a significant non-voting profits interest in the new entity, EULAV Asset Management, a Delaware statutory trust (“EAM” or “EAM Trust”). The Company relied on the guidance in FASB’s ASC Topics 323 and 810 in its determination not to consolidate its investment in EAM and to account for such investment under the equity method of accounting. The Company reports the amount it receives for its non-voting revenues and non-voting profits interests as a separate line item below operating income in the Consolidated Condensed Statements of Income.
Revenue Recognition:
Depending upon the product, subscriptions to Value Line periodicals and related publications are available in print or digitally, via internet access. The length of a subscription varies by product and offer received by the subscriber. Generally, subscriptions are offered as annual subscriptions. Subscription revenues, net of discounts, are recognized ratably on a straight line basis when the product is served to the client over the life of the subscription. Accordingly, the amount of subscription fees to be earned by fulfilling subscriptions after the date of the balance sheets are shown as unearned revenue within current and long term liabilities.
Copyright data revenues are derived from providing certain Value Line trademarks and Value Line Proprietary Ranking System information to third parties under written agreements for use in selecting securities for third party marketed products, including unit investment trusts, annuities and exchange traded funds (“ETFs”). The Company earns asset-based copyright data fees as specified in the individual agreements. Revenue is recognized monthly over the term of the agreement and, because it is asset-based, will fluctuate as the market value of the underlying portfolio increases or decreases in value.
9 |
Notes to Consolidated Condensed Financial Statements
January 31, 2014
(Unaudited)
As of January 31, 2014 | ||||||||||||||||
($ in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents | $ | 3,858 | $ | - | $ | - | $ | 3,858 | ||||||||
Securities available-for-sale | 9,160 | - | - | 9,160 | ||||||||||||
$ | 13,018 | $ | - | $ | - | $ | 13,018 |
10 |
Notes to Consolidated Condensed Financial Statements
January 31, 2014
(Unaudited)
As of April 30, 2013 | ||||||||||||||||
($ in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash equivalents | $ | 6,312 | $ | - | $ | - | $ | 6,312 | ||||||||
Securities available-for-sale | 6,682 | - | - | 6,682 | ||||||||||||
$ | 12,994 | $ | - | $ | - | $ | 12,994 |
11 |
Notes to Consolidated Condensed Financial Statements
January 31, 2014
(Unaudited)
($ in thousands) | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Common stocks | $ | 101 | $ | 47 | $ | (18 | ) | $ | 130 | |||||||
ETFs - equities | 3,878 | 961 | (8 | ) | 4,831 | |||||||||||
Inverse ETFs - equities | 4,868 | - | (669 | ) | 4,199 | |||||||||||
$ | 8,847 | $ | 1,008 | $ | (695 | ) | $ | 9,160 |
($ in thousands) | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Common stocks | $ | 103 | $ | 27 | $ | (16 | ) | $ | 114 | |||||||
ETFs - equities | 3,878 | 740 | - | 4,618 | ||||||||||||
Inverse ETFs - equities | 2,314 | - | (364 | ) | 1,950 | |||||||||||
$ | 6,295 | $ | 767 | $ | (380 | ) | $ | 6,682 |
Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
($ in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Dividend income | $ | 36 | $ | 34 | $ | 109 | $ | 91 | ||||||||
Interest income | 1 | 3 | 2 | 4 | ||||||||||||
Capital gain | 36 | - | 36 | - | ||||||||||||
Other | (3 | ) | - | (5 | ) | (2 | ) | |||||||||
Total income from securities transactions, net | $ | 70 | $ | 37 | $ | 142 | $ | 93 |
Equity Method Investment:
12 |
Notes to Consolidated Condensed Financial Statements
January 31, 2014
(Unaudited)
Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
($ in thousands) (unaudited) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Investment management fees earned from the Value Line Funds, net of fee waivers | $ | 3,750 | $ | 3,252 | $ | 10,815 | $ | 9,481 | ||||||||
12b-1 fees and other fees, net of fee waivers | $ | 1,344 | $ | 992 | $ | 3,757 | $ | 2,868 | ||||||||
Other income | $ | 3 | $ | 5 | $ | 13 | $ | 5 | ||||||||
Investment management fee waivers (1) | $ | 22 | $ | 16 | $ | 69 | $ | 363 | ||||||||
12b-1 fee waivers (1) | $ | 396 | $ | 545 | $ | 1,298 | $ | 1,635 | ||||||||
Value Line’s non-voting revenues interest | $ | 1,767 | $ | 1,472 | $ | 5,028 | $ | 4,280 | ||||||||
EAM’s net income (2) | $ | 414 | $ | 306 | $ | 1,138 | $ | 694 |
January 31, | April 30, | |||||||
($ in thousands) | 2014 | 2013 | ||||||
(unaudited) | ||||||||
EAM’s total assets | $ | 59,730 | $ | 59,349 | ||||
EAM’s total liabilities (1) | (2,987 | ) | (2,814 | ) | ||||
EAM’s total equity | $ | 56,743 | $ | 56,535 |
13 |
Notes to Consolidated Condensed Financial Statements
January 31, 2014
(Unaudited)
Value Line | ||||||||||||||||
($ in thousands) | VIE Assets | Investment in EAM Trust (1) | Liabilities | Maximum Exposure to Loss | ||||||||||||
As of January 31, 2014 (unaudited) | $ | 59,730 | $ | 57,900 | $ | - | $ | 57,900 | ||||||||
As of April 30, 2013 | $ | 59,349 | $ | 57,511 | $ | - | $ | 57,511 |
Nine Months Ended January 31, | ||||||||
($ in thousands) | 2014 | 2013 | ||||||
State and local income tax payments | $ | (97 | ) | $ | (20 | ) | ||
Federal income tax payments to the Parent | $ | (1,054 | ) | $ | (1,030 | ) |
($ in thousands) | Amount Before Tax | Tax Benefit | Amount Net of Tax | |||||||||
Change in unrealized gains on securities | $ | (74 | ) | $ | 26 | $ | (48 | ) | ||||
$ | (74 | ) | $ | 26 | $ | (48 | ) |
($ in thousands) | Amount Before Tax | Tax Expense | Amount Net of Tax | |||||||||
Change in unrealized gains on securities | $ | 70 | $ | (24 | ) | $ | 46 | |||||
$ | 70 | $ | (24 | ) | $ | 46 |
14 |
Notes to Consolidated Condensed Financial Statements
January 31, 2014
(Unaudited)
The Company’s non-voting revenues and non-voting profits interests in EAM entitle it to receive quarterly distributions in a range of 41% to 55% of EAM’s revenues (excluding distribution revenues) from EAM’s mutual fund and separate account business and at least 90% of the Company's 50% interest in the residual profits of EAM which are payable each fiscal quarter under the provisions of the EAM Trust Agreement. Value Line’s percent share of EAM’s revenues calculated each fiscal quarter was 46.66%, 47.27% and 47.91%, respectively, in the first, second and third quarters of fiscal 2014. Value Line’s percent share of EAM’s revenues was 46.20%, 45.87% and 46.15%, respectively, in the first, second and third quarters of fiscal 2013. The distributable amounts earned through the balance sheet date, which is included in the Investment in EAM Trust on the Consolidated Condensed Balance Sheets, and not yet paid, were $1,953,000 and $1,621,000 at January 31, 2014 and April 30, 2013, respectively.
Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
($ in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Non-voting revenues interest in EAM | $ | 1,767 | $ | 1,472 | $ | 5,028 | $ | 4,280 | ||||||||
Non-voting profits interest in EAM | 207 | 153 | 569 | 347 | ||||||||||||
$ | 1,974 | $ | 1,625 | $ | 5,597 | $ | 4,627 |
Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
($ in thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Current tax expense: | ||||||||||||||||
Federal | $ | 949 | $ | 727 | $ | 2,003 | $ | 2,054 | ||||||||
State and local | 66 | 156 | 140 | 258 | ||||||||||||
Current tax expense | 1,015 | 883 | 2,143 | 2,312 | ||||||||||||
Deferred tax expense: | ||||||||||||||||
Federal | (9 | ) | 97 | 521 | 533 | |||||||||||
State and local | 20 | 23 | 111 | 140 | ||||||||||||
Deferred tax expense | 11 | 120 | 632 | 673 | ||||||||||||
Income tax provision | $ | 1,026 | $ | 1,003 | $ | 2,775 | $ | 2,985 |
15 |
Notes to Consolidated Condensed Financial Statements
January 31, 2014
(Unaudited)
January 31, | April 30, | |||||||
($ in thousands) | 2014 | 2013 | ||||||
Federal tax benefit (liability): | ||||||||
Unrealized gains on securities available-for-sale | $ | (110 | ) | $ | (136 | ) | ||
Operating lease deferred obligation | 70 | 13 | ||||||
Deferred professional fees | 39 | 49 | ||||||
Deferred charges | 227 | 265 | ||||||
Total federal tax benefit | 226 | 191 | ||||||
State and local tax benefits: | ||||||||
NYC UBT tax credit carryforward | 181 | - | ||||||
Other | 56 | 36 | ||||||
Total state and local tax benefits | 237 | 36 | ||||||
Deferred tax asset, short term | $ | 463 | $ | 227 | ||||
January 31, | April 30, | |||||||
($ in thousands) | 2014 | 2013 | ||||||
Federal tax liability (benefit): | ||||||||
Deferred gain on deconsolidation of EAM | $ | 17,679 | $ | 17,679 | ||||
Deferred non-cash post-employment compensation | (619 | ) | (619 | ) | ||||
Depreciation and amortization | 2,359 | 1,642 | ||||||
Other | 590 | 262 | ||||||
Total federal tax liability | 20,009 | 18,964 | ||||||
State and local tax liabilities (benefits): | ||||||||
Deferred gain on deconsolidation of EAM | 2,144 | 2,243 | ||||||
Deferred non-cash post-employment compensation | (75 | ) | (79 | ) | ||||
Depreciation and amortization | 286 | 208 | ||||||
Deferred professional fees | (5 | ) | (10 | ) | ||||
Total state and local tax liabilities | 2,350 | 2,362 | ||||||
Deferred tax liability, long term | $ | 22,359 | $ | 21,326 |
Nine Months Ended January 31, | ||||||||
2014 | 2013 | |||||||
U.S. statutory federal rate | 35.00 | % | 35.00 | % | ||||
Increase (decrease) in tax rate from: | ||||||||
State and local income taxes, net of federal income tax benefit | 1.97 | % | 2.78 | % | ||||
Effect of dividends received deductions | -0.42 | % | -0.26 | % | ||||
Domestic production tax credit | -0.46 | % | -0.58 | % | ||||
Other, net | -0.79 | % | - | |||||
Effective income tax rate | 35.30 | % | 36.94 | % |
16 |
January 31, | April 30, | |||||||
($ in thousands) | 2014 | 2013 | ||||||
Land | $ | 726 | $ | 726 | ||||
Building and leasehold improvements | 5,029 | 7,391 | ||||||
Furniture and equipment | 5,239 | 11,180 | ||||||
10,994 | 19,297 | |||||||
Accumulated depreciation and amortization | (7,131 | ) | (15,367 | ) | ||||
Total property and equipment, net | $ | 3,863 | $ | 3,930 |
The Company capitalized $1,874,000 and $1,546,000 related to the development of software for internal use for the nine months ended January 31, 2014 and January 31, 2013, respectively, of which $1,823,000 and $1,444,000 are related to development costs for the digital production software project and $51,000 and $102,000 are related to a new fulfillment system, respectively. Total capitalized software includes $1,255,000 and $1,267,000 of internal costs to develop software and $619,000 and $279,000 of third party programmers' costs for the nine months ended January 31, 2014 and January 31, 2013, respectively. Such costs are capitalized and amortized over the expected useful life of the asset which is 5 years. Total amortization expenses for the nine months ended January 31, 2014 and January 31, 2013 were $1,310,000 and $937,000, respectively.
(in thousands except for shares and cost per share) | Shares | Total Average Cost Assigned | Average Cost per Share | Aggregate Purchase Price Remaining Under the Program | |||||||||||||
Balance as of April 30, 2013 (1)(2)(3) | 123,572 | $ | 1,572 | $ | 12.72 | $ | 2,818 | ||||||||||
Purchases effected in open market during the quarters ended: | |||||||||||||||||
July 31, 2013 | 25,723 | 226 | $ | 8.82 | $ | 2,592 | |||||||||||
October 31, 2013 | 13,428 | 123 | $ | 9.13 | $ | 2,469 | |||||||||||
January 31, 2014 | 15,922 | 160 | $ | 10.02 | $ | 2,309 | |||||||||||
Balance as of January 31, 2014 | 178,645 | $ | 2,081 | $ | 11.65 |
17 |
Rental expenses for the nine months ended January 31, 2014 and January 31, 2013 were $1,896,000 and $1,882,000, respectively. The rental expenses during fiscal 2014 included additional one time overlapping rent of $771,000 for the previously occupied office facilities during the short term lease extension which ended September 15, 2013. The additional rent was offset by a significant decrease in the Company’s annual rental expenses for the New York City office facility under the sublease terms between Value Line, Inc. and Citibank.
Fiscal Years Ending April 30, | ($ in thousands) | |
2014 | $ 367 | |
2015 | 1,468 | |
2016 | 1,468 | |
2017 | 1,224 | |
$ 4,527 |
Note 13 - Subsequent Events:
During February 2014, the Company became aware that a portfolio of third party sponsored assets managed utilizing Value Line’s proprietary copyright data was moved to a new subadvisor, which was beyond the Company’s control. The Company estimates that the decrease in portfolio assets will result in reduced copyright data fees of approximately $700,000 per year.
18 |
● | maintaining revenue from subscriptions for the Company’s digital and print published products; |
● | changes in market and economic conditions, including global financial issues; |
● | protection of intellectual property rights; |
● | 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; |
● | dependence on key personnel; |
● | 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 January 31, 2014; and other risks and uncertainties arising from time to time. |
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The Company’s move to new headquarters in the second quarter of fiscal 2014 will result in lower rent expense over the term of the sublease. However, rental expenses during fiscal 2014 included additional one time overlapping rent of $771,000 for the previously occupied office facilities to permit an orderly move during the short term lease extension which ended September 15, 2013.
Asset Management and Mutual Fund Distribution Businesses
The business of EAM is managed by its trustees each owning 20% of the voting profits interest in 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. Current distribution is set at 90% of EAM’s profits payable each fiscal quarter under the provisions of the EAM Trust Agreement. Value Line’s percent share of EAM’s revenues calculated each fiscal quarter was 46.66%, 47.27% and 47.91%, respectively, in the first, second and third quarters of fiscal 2014. Value Line’s percent share of EAM’s revenues was 46.20%, 45.87% and 46.15%, respectively, in the first, second and third quarters of fiscal 2013.
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 nine months ended January 31, 2014, the NASDAQ and the Dow Jones Industrial Average were up 23.3% and 5.8%, respectively, as compared to the combined Ranking System “Rank 1 & 2” stocks which increased 23.9%, outperforming the S&P 500 Index’s increase of 11.6% during the comparable period.
The U.S. economy, supported by improving levels of consumer spending, gains in residential and nonresidential building, and rising levels of exports, produced growth of 1.1%, 2.5%, 4.1%, and 2.4%, respectively, in the first, second, third and fourth quarters of calendar 2013.
The Federal Reserve, a supporter of the economic upturn via bond purchases each month, has announced its intention to gradually reduce such purchases in the coming months. The Federal Open Market Committee announced on January 29, 2014 that it would taper by $10 billion the monthly asset purchases, lowering the program to $65 billion. The announcement was in line with market expectations. In anticipation of such an adjustment, interest rates may resume climbing.
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Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||||||||||
($ in thousands, except earnings per share) | 2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||||||
Income from operations | $ | 1,008 | $ | 1,088 | -7.4 | % | $ | 2,123 | $ | 3,360 | -36.8 | % | ||||||||||||
Revenues and profits interests from EAM Trust | $ | 1,974 | $ | 1,625 | 21.5 | % | $ | 5,597 | $ | 4,627 | 21.0 | % | ||||||||||||
Income from operations plus non-voting revenues and non-voting profits interests from EAM Trust | $ | 2,982 | $ | 2,713 | 9.9 | % | $ | 7,720 | $ | 7,987 | -3.3 | % | ||||||||||||
Operating expenses | $ | 8,266 | $ | 7,858 | 5.2 | % | $ | 25,116 | $ | 23,333 | 7.6 | % | ||||||||||||
Income from securities transactions, net | $ | 70 | $ | 37 | 89.2 | % | $ | 142 | $ | 93 | 52.7 | % | ||||||||||||
Income before income taxes | $ | 3,052 | $ | 2,750 | 11.0 | % | $ | 7,862 | $ | 8,080 | -2.7 | % | ||||||||||||
Net income | $ | 2,026 | $ | 1,747 | 16.0 | % | $ | 5,087 | $ | 5,095 | -0.2 | % | ||||||||||||
Earnings per share | $ | 0.21 | $ | 0.18 | 16.7 | % | $ | 0.52 | $ | 0.52 | 0.0 | % |
Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||||||||||
($ in thousands) | 2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||||||
Investment periodicals and related publications: | ||||||||||||||||||||||||
$ | 4,705 | $ | 4,709 | -0.1 | % | $ | 13,972 | $ | 14,344 | -2.6 | % | |||||||||||||
Digital | 3,849 | 3,229 | 19.2 | % | 11,084 | 9,449 | 17.3 | % | ||||||||||||||||
Total investment periodicals and related publications | 8,554 | 7,938 | 7.8 | % | 25,056 | 23,793 | 5.3 | % | ||||||||||||||||
Copyright data fees | 720 | 1,008 | -28.6 | % | 2,183 | 2,900 | -24.7 | % | ||||||||||||||||
Total publishing revenues | $ | 9,274 | $ | 8,946 | 3.7 | % | $ | 27,239 | $ | 26,693 | 2.0 | % |
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Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||||||
Digital | Digital | Digital | Digital | |||||||||||||||||||||||||||||
New Sales Orders | 17.2 | % | 22.9 | % | 17.9 | % | 26.2 | % | 20.6 | % | 26.5 | % | 17.9 | % | 23.5 | % | ||||||||||||||||
Conversion and Renewal Sales Orders | 82.8 | % | 77.1 | % | 82.1 | % | 73.8 | % | 79.4 | % | 73.5 | % | 82.1 | % | 76.5 | % | ||||||||||||||||
Total Gross Sales Orders | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
As of January 31, | As of April 30, | As of January 31, | Change | ||
($ in thousands) | 2014 | 2013 | 2013 | Jan-14 vs. Apr-13 | Jan-14 vs. Jan-13 |
Unearned subscription revenue (current and long term liabilities) | $23,999 | $24,709 | $24,033 | -2.9% | -0.1% |
Unearned subscription revenue as of January 31, 2014 is approximately equal to January 31, 2013 and down 2.9% from April 30, 2013. A certain amount of variation is to be expected due to the volume of new orders and timing of renewal orders, direct mail campaigns or large Institutional Sales orders.
Investment periodicals and related publications revenues
Investment periodicals and related publications revenues increased $616,000, or 7.8%, and $1,263,000, or 5.3%, for the three and nine months ended January 31, 2014, respectively, as compared to the prior fiscal year. These results were directly related to the continued increase in circulation attributable to increased marketing efforts. The Company continued its efforts to attract new subscribers through various marketing channels, primarily direct mail, e-mail, and by the efforts of our sales personnel. Total product line circulation at January 31, 2014 was 10.4% above total product line circulation at January 31, 2013, continuing a positive trend of increased subscribers. The Company has been successful in growing revenues from digitally-delivered investment periodicals within both the retail segment and institutional sales. Institutional Sales orders of $8,753,000 for the nine months ended January 31, 2014, were $772,000 or 9.7%, above comparable sales orders of $7,981,000, for the nine months ended January 31, 2013. This growth continues a positive trend for Institutional Sales. We have also benefited from “converting” some customers from retail to professional price services.
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The Company has relied more on its personal selling efforts in both the institutional segment and retail retention and sales development. 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 print customers has been gradually declining as individuals migrate to various digital services including our own. Individual investors interested in digitally-delivered investment information have access to both free and subscription equity research from many sources.
Value Line serves individual and professional investors who are able to pay, whether on a regular monthly plan or annual subscription for basic services, or as much as $100,000 or more annually for extensive premium quality research, not obtainable elsewhere. The ongoing goal of adding new subscribers has led us to experiment with varying terms for our reliable, proprietary research.
The Company has established the goal of developing competitive digital products and marketing them effectively through traditional as well as internet and mobile channels. Towards that end, the Company continues to modernize legacy information technology systems.
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As of January 31, | ||||||||||||
($ in millions) | 2014 | 2013 | Change | |||||||||
Variable annuity assets (“GIAC”) | $ | 482 | $ | 470 | 2.6 | % | ||||||
All other open end equity and hybrid fund assets | 1,608 | 1,402 | 14.7 | % | ||||||||
Total equity funds | 2,090 | 1,872 | 11.6 | % | ||||||||
Fixed income funds | 163 | 197 | -17.3 | % | ||||||||
Total EAM managed net assets | 2,253 | 2,069 | 8.9 | % | ||||||||
Daily Income Fund managed by Reich & Tang Asset Management LLC (“Reich & Tang”) | 54 | 62 | -12.9 | % | ||||||||
Total net assets | $ | 2,307 | $ | 2,131 | 8.3 | % |
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Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||||||||||
($ in thousands) | 2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||||||
Non-voting revenues interest | $ | 1,767 | $ | 1,472 | 20.0 | % | $ | 5,028 | $ | 4,280 | 17.5 | % | ||||||||||||
Non-voting profits interest | 207 | 153 | 35.3 | % | 569 | 347 | 64.0 | % | ||||||||||||||||
$ | 1,974 | $ | 1,625 | 21.5 | % | $ | 5,597 | $ | 4,627 | 21.0 | % |
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Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||||||||||
($ in thousands) | 2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||||||
Advertising and promotion | $ | 1,030 | $ | 1,017 | 1.3 | % | $ | 3,188 | $ | 2,916 | 9.3 | % | ||||||||||||
Salaries and employee benefits | 4,155 | 3,683 | 12.8 | % | 12,020 | 11,096 | 8.3 | % | ||||||||||||||||
Production and distribution | 1,737 | 1,422 | 22.2 | % | 4,798 | 4,236 | 13.3 | % | ||||||||||||||||
Office and administration | 1,344 | 1,736 | -22.6 | % | 5,110 | 5,085 | 0.5 | % | ||||||||||||||||
Total expenses | $ | 8,266 | $ | 7,858 | 5.2 | % | $ | 25,116 | $ | 23,333 | 7.6 | % |
Advertising and promotion expenses during the three months ended January 31, 2014 were comparable with the third quarter of fiscal 2013. Advertising and promotion expenses during the nine months ended January 31, 2014, increased $272,000 or 9.3%, as compared to the prior year period, mainly due to a $142,000 increase in expenses for services related to improvements in retail marketing and brand awareness, and promotion through newspapers, television, and a commercial for internet distribution in fiscal 2014. In the current fiscal year in-house telemarketing expenses which started in March 2013 increased $106,000 and resulted in $3.4 million of retail sales orders during the nine months ended January 31, 2014. There was a decrease of $68,000 in direct mail costs in fiscal 2014.
Production and distribution expenses during the three and nine months ended January 31, 2014, increased $315,000 or 22.2% and $562,000 or 13.3%, respectively, as compared to fiscal 2013. During the three and nine months ended January 31, 2014, increases of $150,000 and $372,000, respectively, resulted from additional amortization of internally developed software costs for the upgrade of our fulfillment system, single sign on, website development and new service oriented production architecture. During the nine months ended January 31, 2014, service mailer and introductory package (binder) costs increased $114,000 and postage expenses increased $83,000 as a result of a 2.5% increase in postal rates in January 2013 which were partially offset by a $66,000 decrease in paper costs due to favorable contracted rates from a new vendor and gradually decreasing use of paper as some subscribers migrate to digital services.
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The rental expenses during fiscal 2014 included additional one time overlapping rent of $771,000 for the previously occupied office facilities during the short term lease extension which ended September 15, 2013. The additional rent was offset by a significant decrease in the Company’s annual rental expenses for the New York City office facility under the sublease terms between Value Line, Inc. and Citibank, with the office move also responsible in part for a decline in maintenance, taxes and utilities at New York City headquarters.
Office and administration expenses during the three months ended January 31, 2014, decreased $392,000 or 22.6% as compared to the third quarter of fiscal 2013 mainly due to a $369,000 decrease in rental expenses. Office and administration expenses during the nine months ended January 31, 2014 were comparable with the prior fiscal year. For the nine months ended January 31, 2014, office and administration expenses included a $117,000 increase in data processing fees and an $81,000 increase in bank fees offset by a decrease of $90,000 in building maintenance costs and a decrease of $101,000 in utilities expenses. Additional decreases in fiscal 2014 are related to a decrease in NJ real estate taxes due to re-assessment of the Company’s warehouse and fulfillment facility resulting in a credit of $151,000 and a decrease in New York City property tax escalation paid on the Company’s previously occupied office facility.
27 |
28 |
29 |
($ in thousands) | Estimated Fair Value after | Hypothetical Percentage | ||||||||||||
Hypothetical | Hypothetical | Increase (Decrease) in | ||||||||||||
Equity Securities | Fair Value | Price Change | Change in Prices | Shareholders’ Equity | ||||||||||
As of January 31, 2014 | Equity Securities and ETFs held for dividend yield | $ | 4,961 | 30% increase | $ | 6,449 | 2.92 | % | ||||||
30% decrease | 3,473 | -2.92 | % | |||||||||||
As of January 31, 2014 | Inverse ETF Holdings | 4,199 | 30% increase | 2,939 | -2.47 | % | ||||||||
30% decrease | 5,459 | 2.47 | % | |||||||||||
As of January 31, 2014 | Total | $ | 9,160 | 30% increase | $ | 9.388 | 0.45 | % | ||||||
30% decrease | $ | 8,932 | -0.45 | % |
($ in thousands) | Estimated Fair Value after | Hypothetical Percentage | ||||||||||||
Hypothetical | Hypothetical | Increase (Decrease) in | ||||||||||||
Equity Securities | Fair Value | Price Change | Change in Prices | Shareholders’ Equity | ||||||||||
As of April 30, 2013 | Equity Securities and ETFs held for dividend yield | $ | 4,732 | 30% increase | $ | 6,152 | 2.80 | % | ||||||
30% decrease | 3,312 | -2.80 | % | |||||||||||
As of April 30, 2013 | Inverse ETF Holdings | 1,950 | 30% increase | 1,365 | -1.15 | % | ||||||||
30% decrease | 2,535 | 1.15 | % | |||||||||||
As of April 30, 2013 | Total | $ | 6,682 | 30% increase | $ | 7,517 | 1.64 | % | ||||||
30% decrease | $ | 5,847 | -1.64 | % |
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(a) | The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding disclosure. |
(b) | The registrant’s Principal Executive Officer and Principal Financial Officer have determined that there have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
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ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||||||||||
(a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |||||||||||||
November 1 - 30, 2013 | 12,496 | $ | 9.41 | 12,496 | $ | 2,351,000 | ||||||||||
December 1 - 31, 2013 | - | - | - | $ | 2,351,000 | |||||||||||
January 1 - 31, 2014 | 3,426 | $ | 12.29 | 3,426 | $ | 2,309,000 | ||||||||||
Fiscal Quarter | 15,922 | $ | 10.02 | 15,922 | $ | 2,309,000 |
31.1 | Certificate of Principal Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certificate of Principal Financial Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Joint Principal Executive Officer/Principal Financial Officer Certificate Required Under Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
32 |
Value Line, Inc. (Registrant) | ||
By: | /s/ Howard A. Brecher | |
Howard A. Brecher | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
By: | /s/ Stephen R. Anastasio | |
Stephen R. Anastasio | ||
Vice President & Treasurer | ||
(Principal Financial Officer) |
33 |