Value Line, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended April 30, 2012. The filing also reports fourth-quarter results; the metadata’s “2011 Q4” does not match the filing’s fiscal-year reporting period. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless noted.
Business context and reporting period
Value Line publishes investment research and related products in print and digital formats and licenses proprietary ranking data to third parties. Following a December 2010 restructuring, it no longer consolidates the asset-management and fund-distribution businesses; instead, it holds non-voting revenue and profit interests in EULAV Asset Management Trust (EAM). Publishing is now its sole reportable operating segment.
Financial results and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Total revenue | $36.61 | $48.67 |
| Publishing revenue | $36.61 | $37.97 |
| Operating income | $5.34 | $8.53 |
| EAM revenue and profit interests | $5.89 | $2.36 |
| Net income | $6.93 | $37.78 |
| Diluted earnings per share | $0.70 | $3.79 |
| Cash provided by operating activities | $2.38 | $10.66 |
- Total reported revenue fell 24.8%, largely because investment-management fees were no longer consolidated after the restructuring. Publishing revenue declined 3.6%; subscription publications fell 4.0%, while copyright data fees rose 0.6% to $3.59 million.
- Publishing operating margin was 14.6%, versus 23.7% in FY2011. Management attributed the decline to lower publishing revenue, relatively fixed costs, and costs shifted into Publishing after the restructuring.
- FY2012 net income was far below FY2011, which included a $50.51 million non-cash gain from deconsolidating subsidiaries. FY2011 also included restructuring and other unusual items; therefore, reported net-income comparisons are not like-for-like.
- Cash from investing activities was $11.26 million and financing activities used $8.40 million. Investing cash flow included $5.88 million of EAM distributions and $3.38 million of capitalized software spending.
- At year-end, cash and cash equivalents were $12.04 million, securities available-for-sale were $3.88 million, and total assets were $84.37 million. Working capital was negative $8.07 million, including $21.55 million of current unearned subscription revenue. The company reported no long-term debt.
- There were no fixed-income investments at year-end. EAM investment funds under management were $2.11 billion, down about 6% from $2.24 billion, primarily reflecting net redemptions.
Fourth quarter: FY2012 revenue was $9.10 million, operating income $0.36 million, and net income $1.09 million, compared with FY2011 fourth-quarter revenue of $9.53 million, operating income of $2.97 million, and net income of $2.94 million.
Material changes, outlook, risks, and unusual items
- The flagship Value Line Investment Survey’s core subscriber renewal rate declined to 73% from 80%; total product-line circulation was down 4.6%. Institutional gross sales orders increased 9% to $10.59 million, but were not enough to offset retail subscriber losses. Management said the negative subscription trend could continue until new products and professional-market initiatives gain traction.
- The company launched a redesigned retail website, Single Sign On and shopping cart, a new fulfillment system, and ValueLinePro.com for institutional customers. It also introduced Value Line Dividend Select in June 2011. Success of these investments is uncertain; FY2012 capitalized software spending was $3.38 million.
- Management expected cash, liquid assets, operating cash flow, and EAM receipts to cover forecast liquidity needs for the next 12 months and did not anticipate borrowings. No quantified earnings or revenue guidance was provided.
- The quarterly dividend was reduced from $0.20 to $0.15 per share in January 2012. FY2012 dividends paid totaled $7.45 million; the prior year included a special $2.00-per-share dividend. The share-repurchase authorization expired in January 2012.
- Key risks include continuing subscription declines and competition from free or low-cost online research; dependence on EAM-related cash flows and fund assets; market-driven redemptions and fund performance; intellectual-property, regulatory, and cybersecurity risks; and dependence on key personnel. The company’s principal office lease expires in May 2013, has no renewal option, and replacement space had not yet been secured.
- The SEC settlement required a $43.71 million payment in 2009 and additional Fair Fund administration costs. The remaining settlement-expense reserve was $0.28 million at April 30, 2012. A separate shareholder derivative-suit settlement was paid by parties other than Value Line and had no material company financial impact.
- AB&Co. beneficially owned approximately 87.2% of Value Line’s shares, giving it voting control. Management reported effective disclosure controls and internal control over financial reporting; the external auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether subscriber renewals, circulation, and retail publishing revenue stabilize, and whether institutional and digital growth can offset losses.
- Future EAM distributions, assets under management, fund redemptions, and the effect of planned fund mergers and the proposed exit from the money-market business.
- Whether the new digital products and technology investments generate sufficient revenue and returns.
- Replacement-office arrangements, relocation costs, and post-May 2013 occupancy expenses.
- Liquidity trends, including negative working capital, cash generation, subscription deferrals, and remaining SEC Fair Fund obligations.