Value Line, Inc. — Form 10-Q Summary
Business context and reporting period
Reports the three and six months ended October 31, 2011, the second quarter and first half of fiscal 2012. Value Line’s continuing business is investment publications and licensed copyright data. On December 23, 2010, it deconsolidated its asset-management and fund-distribution businesses, retaining non-voting revenue and profit interests in EULAV Asset Management Trust (EAM). As a result, year-over-year revenue comparisons include a significant change in business scope.
Key financial results
Amounts below are in millions of dollars unless noted.
| Metric | Three months ended Oct. 31 | Six months ended Oct. 31 |
|---|---|---|
| Total revenue | 2011: $9.14; 2010: $13.50 | 2011: $18.51; 2010: $27.11 |
| Operating income | 2011: $1.52; 2010: $1.79 | 2011: $3.16; 2010: $5.34 |
| Net income | 2011: $1.92; 2010: $1.09 | 2011: $3.99; 2010: $3.40 |
| EPS, basic and diluted | 2011: $0.19; 2010: $0.11 | 2011: $0.40; 2010: $0.34 |
- For the first half, continuing publishing revenue was down 1.7%; investment-periodicals revenue fell 2.7%, while copyright-data fees rose 8.7%. EAM-related revenue and profit interests of $2.915 million were reported below operating income, not in revenue.
- Net income increased 17% for the first half, despite lower operating income, reflecting EAM interest income and lower expenses. Prior-year results included investment-management operations and $2.462 million of restructuring expenses; comparisons are therefore not like-for-like.
- Operating cash flow was negative $1.314 million, versus positive $4.458 million in the prior-year half. Investing activities provided $9.308 million; financing used $4.934 million. Cash and cash equivalents were $9.862 million at October 31.
- Current assets were $16.983 million and current liabilities $26.050 million, producing negative working capital of $9.067 million. Current liabilities included $20.003 million of unearned subscription revenue. Available-for-sale securities were $4.033 million; the EAM investment was $56.282 million.
- No borrowings or debt are reported on the balance sheet. Shareholders’ equity was $32.297 million. The company paid $3.988 million in dividends and repurchased $946,000 of stock during the half.
Material changes, outlook, and risks
- Publishing revenue pressure continued: print publication revenue declined 5.6% in the first half, while electronic publication revenue increased 2.3%. Total product-line circulation was about 3% below the prior year; management cited free or low-cost online and brokerage research and insufficient new subscribers to offset non-renewals. The flagship product’s renewal rate improved to 78% from 75%.
- Value Line’s interest in EAM generated $2.821 million of revenue interest and $94,000 of profit interest in the first half. EAM’s managed Value Line Fund assets were $2.032 billion at October 31, down 4.5% year over year and 9% since April 30, reflecting market depreciation and redemptions.
- Management said cash, liquid resources and expected cash flows should meet current and forecast needs for the next 12 months and that it did not anticipate borrowing in fiscal 2012. It expected investing activities to provide cash from securities maturities and EAM distributions; dividends and repurchases were expected to continue using cash.
- Planned investment in updated technology and digital products is intended to improve product capabilities, but management could not predict launch timing or whether new services would reverse declining retail publishing revenue.
- Key risks include subscriber losses and competition, market-driven changes in EAM assets and distributions, reliance on EAM interests, intellectual-property protection, key-person dependence, regulation, litigation, and market and economic conditions. The filing reported no material changes to the prior annual report’s risk factors.
- The company had a $480,000 remaining accrual for administration costs associated with the SEC Fair Fund settlement and said it did not expect additional fees beyond that amount. A separate $2.9 million derivative-case settlement, approved December 7, 2011, was to be funded by parties other than Value Line and was not expected to materially affect the company.
Investor verification points
- Review the effects of the 2010 EAM restructuring when comparing revenue, operating income and cash flow with prior periods; verify the terms and continuing distributions of Value Line’s non-voting interests.
- Track subscription circulation, renewal and acquisition trends, including whether electronic growth can offset print declines and whether planned product and technology investments gain traction.
- Monitor EAM fund assets, redemptions, fee waivers and distributions, as these affect Value Line’s revenue interest and potential profits interest.
- Reconcile negative working capital with cash resources, unearned subscription obligations, investment maturities, dividends and repurchases.
- Confirm completion and final costs of the Fair Fund administration and the externally funded derivative settlement; note that the latter was approved after the October 31 reporting date.