The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
As of JanuaryOctober 31, 2018 2019 and April 30, 2017, 2019, the Company's investment in EAM Trust on the Consolidated Condensed Balance Sheets was $58,350,000$59,186,000 and $58,223,000,$58,625,000, respectively. | | The value of VLI’sVLI’s investment in EAM at JanuaryOctober 31, 2018 2019 and April 30, 2017 2019 reflects the fair value of contributed capital of $55,805,000$55,805,000 at inception which included $5,820,000$5,820,000 of cash and liquid securities in excess of working capital requirements contributed to EAM’s capital account by VLI, plus VLI's share of non-voting revenues and non-voting profits from EAM less distributions, made quarterly to VLI by EAM, during the period subsequent to its initial investment through the dates of the Consolidated Condensed Balance Sheets. | | It is anticipated that EAM will have sufficient liquidity and earn enough profit to conduct its current and future operations so the management of EAM will not need additional funding. | | | The Company monitors its Investment in EAM Trust for impairment to determine whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. Impairment indicators include, but are not limited to the following: (a) a significant deterioration in the earnings performance, asset quality, or business prospects of the investee, (b) a significant adverse change in the regulatory, economic, or technological environment of the investee, (c) a significant adverse change in the general market condition of the industry in which the investee operates, or (d) factors that raise significant concerns about the investee’sinvestee’s ability to continue as a going concern such as negative cash flows, working capital deficiencies, or noncompliance with statutory capital and regulatory requirements. EAM did not record any impairment losses for its assets during the fiscal years 20182020 or 2017.2019. | | The components of EAM’s investment management operations, provided to the Company by EAM, were as follows: |
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | | ($ in thousands) (unaudited) | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Investment management fees earned from the Value Line Funds, net of waivers shown below | | $ | 5,463 | | | $ | 4,181 | | | $ | 10,610 | | | $ | 8,290 | | 12b-1 fees and other fees, net of waivers shown below | | $ | 2,086 | | | $ | 1,727 | | | $ | 4,065 | | | $ | 3,431 | | Other income | | $ | 5 | | | $ | (27 | ) | | $ | 58 | | | $ | 44 | | Investment management fee waivers and reimbursements | | $ | 109 | | | $ | 110 | | | $ | 218 | | | $ | 221 | | 12b-1 fee waivers | | $ | 166 | | | $ | 175 | | | $ | 339 | | | $ | 334 | | Value Line’s non-voting revenues interest | | $ | 2,768 | | | $ | 2,095 | | | $ | 5,356 | | | $ | 4,063 | | EAM's net income (1) | | $ | 580 | | | $ | 578 | | | $ | 1,146 | | | $ | 1,184 | |
(1) Represents EAM's net income, after giving effect to Value Line’s non-voting revenues interest, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest. |
Value Line, Inc. | Notes to Consolidated Condensed Financial Statements | JanuaryOctober 31, 20182019
| (Unaudited) |
The components of EAM’s investment management operations, provided to the Company by EAM, were as follows:
|
| | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | ($ in thousands) (unaudited) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | Investment management fees earned from the Value Line Funds, net of fee waivers | | $ | 4,070 | | | $ | 3,674 | | | $ | 12,096 | | | $ | 10,991 | | 12b-1 fees and other fees, net of fee waivers | | $ | 1,676 | | | $ | 1,438 | | | $ | 4,844 | | | $ | 4,357 | | Other income | | $ | 52 | | | $ | 57 | | | $ | 156 | | | $ | 136 | | Investment management fee waivers | | $ | 131 | | | $ | 132 | | | $ | 392 | | | $ | 308 | | 12b-1 fee waivers | | $ | 169 | | | $ | 235 | | | $ | 583 | | | $ | 700 | | Value Line’s non-voting revenues interest | | $ | 2,057 | | | $ | 1,803 | | | $ | 6,074 | | | $ | 5,389 | | EAM's net income (1) | | $ | 514 | | | $ | 262 | | | $ | 1,166 | | | $ | 786 | |
| | | October 31, | | | April 30, | | ($ in thousands) | | 2019 | | | 2019 | | | | | (unaudited) | | | | | | EAM's total assets | | $ | 61,701 | | | $ | 60,683 | | EAM's total liabilities (1) | | | (4,723 | ) | | | (3,547 | ) | EAM's total equity | | $ | 56,978 | | | $ | 57,136 | |
(1) Represents EAM's net income, after giving effect to Value Line’s non-voting revenues interest, but before distributions to voting profits interest holders(1) At October 31, 2019 and to the Company in respect of its 50% non-voting profits interest.
|
| | | January 31, | | | April 30, | | ($ in thousands) | | 2018 | | | 2017 | | | | | (unaudited) | | | | | | EAM's total assets | | $ | 60,666 | | | $ | 60,432 | | EAM's total liabilities (1) | | | (3,655 | ) | | | (2,931 | ) | EAM's total equity | | $ | 57,011 | | | $ | 57,501 | |
(1) At January 31, 2018 and April 30, 2017, 2019, EAM's total liabilities included a payable to VLI for its accrued non-voting revenues interest and the 90% distributable share of its non-voting profits interestsinterest of $2,261,000$3,028,000 and $1,919,000,$2,420,000, respectively.
|
Note3 - Variable Interest Entity | | The Company retained a non-voting revenues interest and a 50% non-voting profits interest in EAM, which was formed, as a result of the Restructuring Transaction on December 23, 2010, to carry on the asset management and mutual fund distribution businesses formerly conducted by the Company. EAM is considered to be a VIE.VIE in relation to the Company. The Company makes its determination for consolidation of EAM as a VIE based on a qualitative assessment of the purpose and design of EAM, the terms and characteristics of the variable interests in EAM, and the risks EAM is designed to originate and pass through to holders of variable interests. Other than EAM, the Company does not have an interest in any other VIEs. | | | The Company has determined that it does not have a controlling financial interest in EAM because it does not have the power to direct the activities of EAM that most significantly impact its economic performance. Value Line does not hold any voting stock of EAM and it does not have any involvement in the day-to-day activities or operations of EAM. Although the EAM Trust Agreement provides Value Line with certain consent rights and contains certain restrictive covenants related to the activities of EAM, these are considered to be protective rights and therefore Value Line does not maintain control over EAM. | | | In addition, although EAM is expected to be profitable, there is a risk that it could operate at a loss. While all of the profitsprofit interest shareholders in EAM are subject to variability based on EAM’sEAM’s operations risk, Value Line’s non-voting revenues interest in EAM is a preferred interest in the revenues of EAM, rather than a profits interest in EAM, and Value Line accordingly believes it is subject to proportionately less risk than other holders of the profits interests. | | | The Company has not provided any explicit or implicit financial or other support to EAM other than what was contractually agreed to in the EAM Trust Agreement. Value Line has no obligation to fund EAM in the future and, as a result, has no exposure to loss beyond its initial investment and any undistributed revenues and profits interests retained in EAM. The following table presents the total assets of EAM, the maximum exposure to loss due to involvement with EAM, as well as the value of the assets and liabilities the Company has recorded on its Consolidated Condensed Balance Sheets for its interest in EAM. |
| | | | | | | Value Line | | ($ in thousands) | | VIE Assets | | | Investment in EAM Trust (1) | | | Liabilities | | | Maximum Exposure to Loss | | As of January 31, 2018 (unaudited) | | $ | 60,666 | | | $ | 58,350 | | | $ | - | | | $ | 58,350 | | As of April 30, 2017 | | $ | 60,432 | | | $ | 58,223 | | | $ | - | | | $ | 58,223 | |
| | | | | | | Value Line | | ($ in thousands) | | VIE Assets | | | Investment in EAM Trust (1) | | | Liabilities | | | Maximum Exposure to Loss | | As of October 31, 2019 (unaudited) | | $ | 61,701 | | | $ | 59,186 | | | $ | - | | | $ | 59,186 | | As of April 30, 2019 | | $ | 60,683 | | | $ | 58,625 | | | $ | - | | | $ | 58,625 | |
(1)(1) Reported within Long-Term Assets on the Consolidated Condensed Balance Sheets.
|
Note 4 - Supplementary Cash Flows Information: | | Reconciliation of Cash, Cash Equivalents, and Restricted Cash: | | The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Condensed Statement of Cash Flows that sum to the total of the same such amounts shown in the Consolidated Condensed Statement of Cash Flows. |
| | | Six months Ended October 31, | | ($ in thousands) | | 2019 | | | 2018 | | Cash and cash equivalents | | $ | 4,631 | | | $ | 4,585 | | Restricted cash | | | 469 | | | | 469 | | Total cash, cash equivalents, and restricted cash shown in the Consolidated Condensed Statement of Cash Flows | | $ | 5,100 | | | $ | 5,054 | |
Income Tax Payments: | | The Company made income tax payments as follows: |
| | | Six Months Ended October 31, | | ($ in thousands) | | 2019 | | | 2018 | | State and local income tax payments | | $ | 739 | | | $ | 119 | | Federal income tax payments to the Parent | | | 1,950 | | | | 1,300 | |
Value Line, Inc. | Notes to Consolidated Condensed Financial Statements | JanuaryOctober 31, 20182019
| (Unaudited) |
Note 4 - Supplementary Cash Flow Information:
|
| | | Nine months ended January 31, | | ($ in thousands) | | 2018 | | | 2017 | | State and local income tax payments | | $ | 232 | | | $ | 552 | | Federal income tax payments to the Parent | | $ | 3,450 | | | $ | 5,250 | |
Note 5 - Employees' Profit Sharing and Savings Plan: | | Substantially all employees of the Company and its subsidiaries are members of the Value Line, Inc. Profit Sharing and Savings Plan (the "Plan"). In general, this is a qualified, contributory plan which provides for a discretionary annual Company contribution which is determined by a formula based on the salaries of eligible employees and the amount of consolidated net operating income as defined in the Plan. For the ninesix months ended JanuaryOctober 31, 2019 and October 31, 2018, and January 31, 2017, the estimated profit sharing plan contributions, which are included as expenses in salaries and employee benefits in the Consolidated Condensed Statements of Income, were $345,000 and 321,000, respectively.$263,000 in both years. | |
Note 6 - Comprehensive Income: | | The FASB's ASC Comprehensive Income topic requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that otherwise would not be recognized in the calculation of net income. | | As of JanuaryOctober 31, 2019 and October 31, 2018, and January 31, 2017, the Company held equity securities consisting primarily of ETFs with high relative dividend yields that are classified as securities available-for-sale on the Consolidated Condensed Balance Sheets. The change in valuation of these securities, net of deferred income taxes, has been recorded in accumulated other comprehensive income in the Company's Consolidated Condensed Balance Sheets. | | The components of comprehensive income included in the Consolidated Condensed Statements of Income and Changes in Shareholders' Equity for the ninesix months ended JanuaryOctober 31, 2018 2019 are as follows: | |
($ in thousands) | | Amount Before Tax | | | Tax Expense | | | Amount Net of Tax | | | Amount Before Tax | | | Tax Expense | | | Amount Net of Tax | | Change in unrealized gains on securities | | $ | 978 | | | $ | (105 | ) | | $ | 873 | | | $ | 457 | | | $ | (95 | ) | | $ | 362 | | Less: Gains realized in net income | | $ | (152 | ) | | $ | 32 | | | $ | (120 | ) | | | | | $ | 826 | | | $ | (73 | ) | | $ | 753 | | | $ | 457 | | | $ | (95 | ) | | $ | 362 | |
The components of comprehensive income included in the Consolidated Condensed Statements of Income and Changes in Shareholders' Equity for the ninesix months ended JanuaryOctober 31, 2017 2018 are as follows: |
($ in thousands) | | Amount Before Tax | | | Tax Expense | | | Amount Net of Tax | | | Amount Before Tax | | | Tax Expense | | | Amount Net of Tax | | Change in unrealized gains on securities | | $ | 271 | | | $ | (96 | ) | | $ | 175 | | | $ | 229 | | | $ | (48 | ) | | $ | 181 | | Less: Gains realized in net income | | | (39 | ) | | | 14 | | | | (25 | ) | | | | | $ | 232 | | | $ | (82 | ) | | $ | 150 | | | $ | 229 | | | $ | (48 | ) | | $ | 181 | |
Note 7 - Related Party Transactions: | | Investment Management (overview): | | The Company has substantial non-voting revenues and non-voting profits interests in EAM, the asset manager to the Value Line Mutual Funds. Accordingly, the Company does not reportno longer reports this operation as a separate business segment, although it still maintains a significant interest in the cash flows generated by this business and will receive ongoing payments in respect of its non-voting revenues and non-voting profits interests.interests, as discussed below. | | | Total assets in the Value Line Funds managed and/or distributed by EAM at JanuaryOctober 31, 2018, 2019, were $2.6$3.50 billion, 13%36% above total assets of $2.3$2.57 billion in the Value Line Funds managed and/or distributed by EAM at JanuaryOctober 31, 2017.2018. | | | The Company’sCompany’s non-voting revenues and non-voting profits interests in EAM entitle it to receive quarterly distributions in a range of 41% to 55% of EAM’s revenues (excluding distribution revenues) from EAM’s mutual fund and separate account business and 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances). The Voting Profits Interest Holders will receive the other 50% of residual profits of EAM. Distribution is not less than 90% of EAM’s profits payable each fiscal quarter under the provisions of the EAM Trust Agreement. Value Line’s percent share of EAM’s revenues is calculated each fiscal quarter was 49.73%,50.28% and 50.88% duringquarter. The applicable recent non-voting revenues interest percentage for the first, second and third quarters quarter of fiscal 2018, respectively, and 49.45%,49.14% and 49.19% during the first, second and third quarters of fiscal 2017, respectively. |
Value Line, Inc.2020 was 50.71%.
| Notes to Consolidated Condensed Financial Statements
| January 31, 2018
| (Unaudited)
|
EAM Trust - VLI's non-voting revenues and non-voting profits interests: | | The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business. EAM currently has no separately managed account clients.fees. The Company recorded income from its non-voting revenues interest and its non-voting profits interestinterests in EAM as follows: |
| | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | Three Months Ended October 31, | | | Six Months Ended October 31, | | ($ in thousands) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Non-voting revenues interest in EAM | | $ | 2,057 | | | $ | 1,803 | | | $ | 6,074 | | | $ | 5,389 | | | $ | 2,768 | | | $ | 2,095 | | | $ | 5,356 | | | $ | 4,063 | | Non-voting profits interest in EAM | | | 227 | | | | 131 | | | | 583 | | | | 393 | | | | 290 | | | | 289 | | | | 573 | | | | 592 | | | | | $ | 2,284 | | | $ | 1,934 | | | $ | 6,657 | | | $ | 5,782 | | | $ | 3,058 | | | $ | 2,384 | | | $ | 5,929 | | | $ | 4,655 | |
At JanuaryOctober 31, 2018, 2019, the Company's investment in EAM includes a receivable of $2,261,000$3,028,000 representing the quarterly distribution of 100% of the non-voting revenues share and 90% of its non-voting profits share. Such amountThat sum was timely paid subsequent to January 31, 2018.subsequently paid. |
Value Line, Inc. | Notes to Consolidated Condensed Financial Statements | October 31, 2019 | (Unaudited) |
Transactions with Parent: | | During the ninesix months ended JanuaryOctober 31, 2019 and October 31, 2018, and January 31, 2017, the Company was reimbursed $242,000$191,000 and $252,000,$188,000, respectively, for payments it made on behalf of and for services the Company provided to the Parent Company, Arnold Bernhard and Co., Inc. ("Parent"). There were no receivables from the Parent on the Consolidated Condensed Balance Sheets at JanuaryOctober 31, 2018 2019 and April 30, 2017.2019. | | The Company is a party to a tax-sharing arrangement with the Parent which allocates the tax liabilities of the two Companies between them. The Company made federal tax payments of $3,450,000$1,950,000 and $5,250,000$1,300,000 to the Parent during the ninesix months ended JanuaryOctober 31, 2019 and October 31, 2018, and January 31, 2017, respectively. | From time to time, the Parent has purchased additional shares of common stock of the Company in the market when and as the Parent has determined it to be appropriate. The Parent may make additional purchases of common stock of the Company from time to time in the future. As of JanuaryOctober 31, 2018, 2019, the Parent owned 89.0%89.50% of the outstanding shares of common stock of the Company.
| |
Note 8 - Federal, State and Local Income Taxes: | | In accordance with the requirements of the Income Tax Topic of the FASB's ASC, the Company's provision for income taxes includes the following: | |
| | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | Three Months Ended October 31, | | | Six Months Ended October 31, | | ($ in thousands) | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Current tax expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal | | $ | 222 | | | $ | 851 | | | $ | 2,681 | | | $ | 5,424 | | | $ | 1,143 | | | $ | 871 | | | $ | 2,133 | | | $ | 1,605 | | State and local | | | 55 | | | | 166 | | | | 303 | | | | 506 | | | | 319 | | | | 72 | | | | 615 | | | | 160 | | Current tax expense | | | 277 | | | | 1,017 | | | | 2,984 | | | | 5,930 | | | | 1,462 | | | | 943 | | | | 2,748 | | | | 1,765 | | Deferred tax expense (benefit): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Federal | | | (6,014 | ) | | | (282 | ) | | | (6,326 | ) | | | (870 | ) | | | (38 | ) | | | 5 | | | | (54 | ) | | | 5 | | State and local | | | 70 | | | | (326 | ) | | | (79 | ) | | | (387 | ) | | | 195 | | | | 17 | | | | 272 | | | | (254 | ) | Deferred tax expense (benefit): | | | (5,944 | ) | | | (608 | ) | | | (6,405 | ) | | | (1,257 | ) | | | 157 | | | | 22 | | | | 218 | | | | (249 | ) | Income tax provision | | $ | (5,667 | ) | | $ | 409 | | | $ | (3,421 | ) | | $ | 4,673 | | | $ | 1,619 | | | $ | 965 | | | $ | 2,966 | | | $ | 1,516 | |
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act (the "Tax Act"), was enacted. The Tax Act lowerslowered the U.S. federal income tax rate ("Federal Tax Rate") from 35% to 21% effective January 1, 2018. Accordingly, the Company computes itsFederal income tax expense forusing the fiscal year ending April 30, 2018 using a blended Federal Tax Rate of 30.33%. The 21% Federal Tax Rate will apply to in fiscal year ending April 30, 2019 2020 and each year thereafter. |
| The overall effective income tax rates,rates, as a percentage of pre-tax ordinary income for the ninesix months ended JanuaryOctober 31, 2019 and October 31, 2018 were 27.29% and January 31, 2017 were (34.69%) and 33.48%19.14%, respectively. The aforementioned reductionincrease in the incomeeffective tax rate resultsduring the quarter ended October 31, 2019 is primarily a result of an increase in the state and local income taxes as a result of changes in state and local tax benefit of 65.87% of pre-tax income forlegislation and thenine months ended January 31, 2018, primarily attributable to the effect on the long-term deferred tax liability. The Company re-calculated its net deferred tax assets and liabilities using the Federal Tax Rate under the Tax Act. The effect of the re-calculation is reflected entirelylowering of NYC tax allocation factor on deferred taxes in the third quarter ended January 31, 2018 (the period that includes the enactment date) and is allocated directly to both current and deferred income tax expenses from continuing operations.fiscal 2019. The Company's annualized overall effective tax rate fluctuates due to a number of factors, in addition to the newchanges in tax law, including but not limited to an increase or decrease in the ratio of items that do not have tax consequences to pre-tax income, the Company's geographic profit mix between tax jurisdictions, taxation method adopted by each locality, new interpretations of existing tax laws and rulings and settlements with tax authorities. |
Value Line, Inc.
| Notes to Consolidated Condensed Financial Statements
| January 31, 2018
| (Unaudited)
|
Deferred income taxes, a liability, are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The tax effect of temporary differences giving rise to the Company's long-term deferred tax liability are as follows: |
| | | January 31, | | | April 30, | | | October 31, | | | April 30, | | ($ in thousands) | | 2018 | | | 2017 | | | 2019 | | | 2019 | | Federal tax liability (benefit): | | | | | | | | | | | | | | | | | Deferred gain on deconsolidation of EAM | | $ | 10,655 | | | $ | 17,742 | | | $ | 10,669 | | | $ | 10,669 | | Deferred non-cash post-employment compensation | | | (372 | ) | | | (619 | ) | | | (372 | ) | | | (372 | ) | Depreciation and amortization | | | 179 | | | | 454 | | | | 115 | | | | 130 | | Unrealized loss (gain) on securities held for sale | | | 322 | | | | (366 | ) | | Unrealized gain on securities held for sale | | | | 542 | | | | 446 | | Deferred charges | | | | (341 | ) | | | (354 | ) | Other | | | (42 | ) | | | - | | | | (347 | ) | | | (279 | ) | Total federal tax liability | | | 10,742 | | | | 17,211 | | | | 10,266 | | | | 10,240 | | | | | | | | | | | | | | | | | | | | State and local tax liabilities (benefits): | | | | | | | | | | | | | | | | | Deferred gain on deconsolidation of EAM | | | 1,298 | | | | 1,206 | | | | 2,814 | | | | 2,530 | | Deferred non-cash post-employment compensation | | | (45 | ) | | | (42 | ) | | | (98 | ) | | | (74 | ) | Depreciation and amortization | | | 22 | | | | 31 | | | | 28 | | | | 40 | | Other | | | (45 | ) | | | (29 | ) | | | (88 | ) | | | (112 | ) | Total state and local tax liabilities | | | 1,230 | | | | 1,166 | | | | 2,656 | | | | 2,384 | | Deferred tax liability, long-term | | $ | 11,972 | | | $ | 18,377 | | | $ | 12,922 | | | $ | 12,624 | |
In November 2015, the FASB issued ASU 2015-17, Income taxes (Topic 740): Balance Sheet Classification of Deferred Taxes which requires that all deferred tax assets and liabilities, along with related valuation allowances, be classified as long-term on the balance sheet. As a result, each tax-paying jurisdiction will now only have one net long-term asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The Company implemented ASU 2015-17 in the first quarter of fiscal 2018 retroactively to include the results as of April 30, 2017 for comparative purposes. The adoption of ASU 2015-17 does not have a material impact on our consolidated condensed financial statements and related disclosures.
| | At the end of each interim reporting period, the Company estimates the effective income tax rate to apply for the full fiscal year. The Company uses the effective income tax rate determined to provide for income taxes on a year-to-date basis and reflects the tax effect of any tax law changes and certain other discrete events in the period in which they occur. |
Value Line, Inc. | Notes to Consolidated Condensed Financial Statements | JanuaryOctober 31, 20182019
| (Unaudited) |
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income as a result of the following: |
| | | Nine Months Ended January 31, | | | Six Months Ended October 31, | | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | U.S. statutory federal tax rate | | | 30.33 | % | | | 35.00 | % | | | 21.00 | % | | | 21.00 | % | Increase (decrease) in tax rate from: | Increase (decrease) in tax rate from: | | | | | | | | | | | | | | Effect on deferred tax liabilities from federal tax rate reduction to 21% | | | -65.87 | % | | | - | | | State and local income taxes, net of federal income tax benefit | | | 1.27 | % | | | -0.39 | % | | | 6.45 | % | | | (1.62 | )% | Effect of dividends received deductions | | | -0.47 | % | | | -0.29 | % | | | (0.20 | )% | | | (0.24 | )% | Domestic production tax credit | | | -0.13 | % | | | -0.19 | % | | Other, net | | | 0.18 | % | | | -0.65 | % | | | 0.04 | % | | | 0 | % | Effective income tax rate | | | -34.69 | % | | | 33.48 | % | | | 27.29 | % | | | 19.14 | % |
The Company believes that, as of JanuaryOctober 31, 2018, 2019, there were no material uncertain tax positions that would require disclosure under GAAP. | | | The Company is included in the consolidated federal income tax return of the Parent. The Company has a tax sharing agreement which requires it to make tax payments to the Parent equal to the Company's liability/(benefit) as if it filed a separate return. Beginning with the fiscal year ended April 30, 2017, the Company files combined income tax returns with the Parent on a unitary basis in certain states as a result of changes in state tax regulations. The Company does not anticipate any significant tax implications from the change to unitary state tax filing. | | | The Company’sCompany’s federal income tax returns (included in the Parent’s consolidated returns) and state and city tax returns for fiscal years ended 20142016 through 2017,2018, are subject to examination by the tax authorities, generally for three years after they are filed with the tax authorities. The Company is presently engaged in a federal tax audit for the fiscal year ended April 30, 2015 and does not expect it to have a material effect on the financial statements. | |
Note 9 - Property and Equipment: | | Property and equipment are carried at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, over the remaining terms of the leases. For income tax purposes, depreciation of furniture and equipment is computed using accelerated methods and buildings and leasehold improvements are depreciated over prescribed extended tax lives. Property and equipment, net, on the Consolidated Condensed Balance Sheets was comprised of the following: |
| | | January 31, | | | April 30, | | | October 31, | | | April 30, | | ($ in thousands) | | 2018 | | | 2017 | | | 2019 | | | 2019 | | Building and leasehold improvements | | $ | 1,013 | | | $ | 789 | | | $ | 1,013 | | | $ | 1,013 | | Operating lease - right-of-use asset | | | | 9,046 | | | | - | | Furniture and equipment | | | 4,021 | | | | 3,865 | | | | 4,044 | | | | 4,042 | | | | | | 5,034 | | | | 4,654 | | | | 14,103 | | | | 5,055 | | Accumulated depreciation and amortization | | | (3,601 | ) | | | (3,415 | ) | | | (4,011 | ) | | | (3,909 | ) | Total property and equipment, net | | $ | 1,433 | | | $ | 1,239 | | | $ | 10,092 | | | $ | 1,146 | |
Note 10 - Accounting for the Costs of Computer Software Developed for Internal Use: | | The Company has adopted the provisions of the Statement of Position 98-198-1 (SOP 98-1)98-1), "Accounting for the Costs of Computer Software Developed for Internal Use". SOP 98-198-1 requires companies to capitalize as long-lived assets many of the costs associated with developing or obtainingpurchasing software for internal use and amortize those costs over the software's estimated useful life in a systematic and rational manner. | | The Company did not incur and did not capitalize expenditures related to the development of software for internal use during the nine months ended January 31, 2018. The Company capitalized $411,000 related to the development of software for internal use during the nine months ended January 31, 2017. Capitalized software included $215,000 of internal costs to develop software and $196,000 of third party programmers' costs during the nine months ended January 31, 2017. Such costs, werewhen incurred, are capitalized and amortized over the expected useful life of the asset, which is normally 3 to 5 years. Total amortization expenses during the ninesix months ended JanuaryOctober 31, 2019 and October 31, 2018, were $35,000 and January 31, 2017, were $610,000$79,000, respectively.
| | The Company did not incur and $3,558,000, respectively. Additional amortization expense in fiscal 2017 was primarily attributabledid not capitalize expenditures related to third party programmers' costs or to the re-evaluationdevelopment of software for internal use during the useful life of internally developed software costs relatedsix months ended October 31, 2019 or October 31, 2018. | |
Value Line, Inc. | Notes to digital security and product production software.Consolidated Condensed Financial Statements | October 31, 2019 | (Unaudited) |
Note 11 - Treasury Stock and Repurchase Program: | | On SeptemberOctober 19, 2012, 2018, the Company's Board of Directors approved a share repurchase program authorizing the repurchase of shares of the Company’sCompany’s common stock up to an aggregate purchase price of $3,000,000.$2,000,000. The repurchases may be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block purchases or otherwise. The repurchase program may be suspended or discontinued at any time at the Company’s discretion and has no set expiration date. |
Treasury stock, at cost, consists of the following: |
(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, 2019 (1), (2), (3) | | | 336,439 | | | $ | 4,743 | | | $ | 14.10 | | | $ | 1,438 | | Purchases effected in open market during the quarters ended: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | July 31, 2019 | | | 3,857 | | | | 92 | | | | 23.88 | | | | 1,346 | | October 31, 2019 | | | 12,636 | | | | 301 | | | | 23.78 | | | | 1,045 | | Balance as of October 31, 2019 | | | 352,932 | | | $ | 5,136 | | | $ | 14.55 | | | $ | 1,045 | |
(1) Includes 85,219 shares that were acquired during the former repurchase program which was authorized in January 2011 and expired in January 2012; 18,400 shares were acquired prior to January 2011. |
(2) Includes 207,047 shares that were acquired during the $3 million repurchase program which was authorized in September 2012 and expired in October 2018. |
(3) Includes 42,266 shares that were acquired during the $2 million repurchase program which was authorized in October 2018. |
Note 12 - Leases: | | In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This ASU requires that, for leases longer than one year, a lessee recognize in the statements of financial position a right-of-use asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. It also requires that for finance leases, a lessee recognize interest expense on the lease liability, separately from the amortization of the right-of-use asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. The firm adopted this ASU in May 2019 under a modified retrospective approach. | | The Company adopted ASU 2016-02 using a modified retrospective transition approach as of the Effective Date as permitted by the amendments in ASU 2018-11, which provides an alternative modified retrospective transition method. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption (i.e. May 1, 2019). The Company has elected to employ the transitionary relief offered by the FASB and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized. | | The Company leases office space in New York, NY and a warehouse and appurtenant office space in Lyndhurst, NJ. The Company has evaluated these leases and determined that they are operating leases under the definitions of the guidance of ASU 2016-02. | | The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. | | On May 1, 2019, the Company recorded a right-of-use asset in the amount of $9,575,000, which represents the lease liability of $10,340,000 adjusted for previously recorded unamortized lease incentives in the amount of $765,000. The right-of-use asset will be amortized over the remaining lease term in the amount equal to the difference between the calculated straight-line expense of the total lease payments less the monthly interest calculated on the remaining lease liability. As of October 31, 2019, the Company had a long-term lease asset of $9,046,000 recorded in property and equipment in its consolidated condensed balance sheets. | | The Company will recognize lease expense, calculated as the remaining cost of the lease allocated over the remaining lease term on a straight-line basis. Lease expense will be presented as part of continuing operations in the consolidated condensed statements of income. For the six months ended October 31, 2019, the Company recognized $750,000 in lease expense. | | For the six months ended October 31, 2019, the Company paid $694,000 in rent relating to the leases. As a payment arising from an operating lease, the $694,000 will be classified within operating activities in the consolidated condensed statements of cash flows. |
Value Line, Inc. | Notes to Consolidated Condensed Financial Statements | JanuaryOctober 31, 20182019
| (Unaudited) |
Treasury stock, at cost, consistsThe Company’s leases generally do not provide an implicit interest rate, and therefore the Company estimated an incremental borrowing rate, or IBR, as of the following:commencement date, to determine the present value of its operating lease liabilities. The IBR is defined under ASC 842 as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the condensed consolidated balance sheet as of October 31, 2019:
|
(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, 2017 (1)(2) | | | 288,335 | | | $ | 3,781 | | | $ | 13.11 | | | $ | 609 | | Purchases effected in open market during the quarters ended: | | | | | | | | | | | | | | | | | July 31, 2017 | | | 2,353 | | | | 40 | | | | 17.29 | | | | 569 | | October 31, 2017 | | | 6,512 | | | | 110 | | | | 16.90 | | | | 459 | | January 31, 2018 | | | 2,285 | | | | 41 | | | | 17.99 | | | | 418 | | Balance as of January 31, 2018 | | | 299,485 | | | $ | 3,972 | | | $ | 13.26 | | | $ | 418 | |
Fiscal years ended April 30, | | (in thousands) | | 2020 * | | $ | 705 | | 2021 | | | 1,432 | | 2022 | | | 1,506 | | 2023 | | | 1,597 | | 2024 | | | 1,634 | | Thereafter | | | 5,265 | | Total undiscounted future minimum lease payments | | | 12,139 | | Less: difference between undiscounted lease payments & the present value of future lease payments | | | 2,273 | | Total operating lease liabilities | | $ | 9,866 | |
(1) Includes 85,219 shares with a total average cost of $1,036,000 that were acquired during* Excludes the former repurchase program, which was authorized in January 2011 and expired in January 2012; 18,400 shares were acquired prior to January 2011.
| | (2) Were acquired during the $3 million repurchase program authorized in September 2012.six months ended October 31, 2019
|
Note 12 - Lease Commitments: | | In February 2017 the Company's headquarters and offices moved to a new location. On November 30, 2016, Value Line, Inc., received consent from the landlord at 551 Fifth Avenue, New York, NY to the terms of a new sublease agreement between Value Line, Inc. and ABM Industries, Incorporated (“ABM” or the “Sublandlord”) commencing on December 1, 2016. Pursuant to the agreement Value Line leased from ABM 24,726 square feet of office space located on the second and third floors at 551 Fifth Avenue, New York, NY (“Building” or “Premises”) beginning on December 1, 2016 and ending on November 29, 2027. Base rent under the sublease agreement is $1,126,000 per annum during the first year with an annual increase in base rent of 2.25% scheduled for each subsequent year, payable in equal monthly installments on the first day of each month, subject to customary concessions in the Company’s favor and pass-through of certain increases in utility costs and real estate taxes over the base year. The Company provided a security deposit represented by a letter of credit in the amount of $469,000 in October 2016, which is scheduled to be reduced to $305,000 on September 30, 2021 and fully refunded after the sublease ends. This Building became the Company’s new corporate office facility. The Company is required to pay for certain operating expenses associated with the Premises as well as utilities supplied to the Premises. The sublease terms provide for a significant decrease (23% initially) in the Company’s annual rental expenditure taking into account free rent for the firstsix months of the sublease. Sublandlord provided Value Line a work allowance of $417,000 which accompanied with the six months free rent worth $563,000 was applied against the Company’s obligation to pay rent at our NYC headquarters, delaying the actual rent payments until November 2017.
| | On February 29,2016, the Company’s subsidiary Value Line Distribution Center (“VLDC”) and Seagis Property Group LP (the “Landlord”) entered into a lease agreement, pursuant to which VLDC has leased 24,110 square feet of warehouse and appurtenant office space located at 205 Chubb Ave., Lyndhurst, NJ (“Warehouse”) beginning on May 1, 2016 and ending on April 30, 2024 (“Lease”). Base rent under the Lease is $192,880 per annum payable in equal monthly installments on the first day of each month, in advance during fiscal 2017 and will gradually increase to $237,218 in fiscal 2024, subject to customary increases based on operating costs and real estate taxes. The Company provided a security deposit in cash in the amount of $32,146, which will be fully refunded after the lease term expires. The lease is a net lease requiring the Company to pay for certain operating expenses associated with the Warehouse as well as utilities supplied to the Warehouse.
| The total amount of the base rent payments is being charged to expense on the straight-line method over the term of the lease.
| | Future minimum payments, exclusive of potential increases in real estate taxes and operating cost escalations, under operating leases for office space, with remaining terms of one year or more, are as follows:
|
Fiscal Years Ended April 30, | | ($ in thousands) | | | | | | | | 2019 | | $ | 1,366 | | 2020 | | | 1,399 | | 2021 | | | 1,432 | | 2022 | | | 1,506 | | 2023 and thereafter | | | 8,496 | | | | | $ | 14,199 | |
For the nine months ended January 31, 2018 and 2017, rental expenses were $931,000 and $1,252,000, respectively.
|
Note 13 - Restricted Cash and Deposits:
| | Restricted Money Market Investment in the noncurrent assets on the Consolidated Condensed Balance Sheet at JanuaryOctober 31, 2018, 2019, includes $469,000,$469,000, which represents cash invested in a bank money market fund securing a letter of credit ("LOC") in the amount of $469,000$469,000 issued to the sublandlord as a security deposit for the Company's NYCNew York City leased corporate office facility. |
Value Line, Inc.
| Notes to Consolidated Condensed Financial Statements
| January 31, 2018
| (Unaudited)
|
Note 14 - Gain on Sale of Operating Facility:
| | On July 29, 2016, Value Line closed the sale of its 85,000 sq. ft. distribution, fulfillment and warehouse operating facility located at 125 East Union Avenue, East Rutherford, NJ, received net proceeds of $11,555,000 and reported an increment to net profits after tax during the first quarter of fiscal 2017 of approximately $5.28 million. The distribution, fulfillment and warehouse operations were relocated to an alternative 24,110 sq. ft. leased facility (See Note 12).
|
Note 1514 - Concentration: | | During the ninesix months ended JanuaryOctober 31, 2018, 17%2019, 29.0% of total publishing revenues of $26,997,000$19,697,000 were derived from a single customer. | |
Note 15 - Concentration of Credit Risk: | | Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of October 31, 2019 and October 31, 2018, the Company had $1,445,000 and $3,000,000, respectively, in excess of the FDIC insured limit. Management has concluded the excess does not represent a material risk, based on the creditworthiness of the counter parties. |
Item 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Cautionary Statement Regarding Forward-Looking Information This report contains statements that are predictive in nature, depend upon or refer to future events or conditions (including certain projections and business trends) accompanied by such phrases as “believe”, “estimate”, “expect”, “anticipate”, “will”, “intend” and other similar or negative expressions, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, as amended. Actual results for Value Line, Inc. (“Value Line” or “the Company”) may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the following: | | ● | maintaining revenue from subscriptions for the Company’s digital and print published products; |
| | ● | changes in market and economic conditions, including global financial issues; |
| | ● | protection ofprotecting 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 and third party copyright 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 thesefactors; |
| ● | possible changes may have onin the valuation of EAM’s intangible assets;assets from time to time; |
| | ● | generating future revenues or collection of receivables from significant customers; |
| | ● | dependence on key personnel; |
| | ● | competition in the fields of publishing, copyright data and investment management;management, along with associated effects on the level and structure of prices and fees, and the mix of services delivered; |
| | ● | 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 attacks and natural disasters; |
| | ● | changes in prices of materials and other inputs required by the Company; |
| ● | other risks and uncertainties, including but not limited to the risks described in Item 1A, “Risk“Risk Factors” of the Company’sCompany’s Annual Report on Form 10-K for the year ended April 30, 20172019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the period ended JanuaryOctober 31, 2018;2019; and other risks and uncertainties arising from time to time. |
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors which may involve external factors over which we may have no control or changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at our discretion, could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC's rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, current plans, anticipated actions, and future financial conditions and results may differ from those expressed in any forward-looking information contained herein. In this report, “Value Line,” “we,” “us,” “our” refers to Value Line, Inc. and the “Company”“the Company” refers to Value Line and its subsidiaries unless the context otherwise requires. Executive Summary of the Business The Company's core business is producing investment periodicals and their underlying research and making available copyright data, including certain proprietaryValue Line copyrights, Value Line trademarks and Value Line Proprietary Ranking System results and other proprietary information, to third parties under written agreements for use in third-party managed and marketed investment products and for other purposes. Value Line markets under well-known brands including Value Line®, the Value Line logo®, The Value Line Investment Survey®, Smart Research,, Smarter Investing™ and The Most Trusted Name in Investment Research®. The name "Value Line" as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company. Effective December 23, 2010, EULAV Asset Management Trust (“EAM”) was established to provide the investment management services to the Value Line Funds, institutional and individual accounts and provide distribution, marketing, and administrative services to the Value Line® Mutual Funds ("Value Line Funds"). The Company maintains a significant investment in EAM from which it receives payments in respect of its non-voting revenues and non-voting profits interests. The Company’sCompany’s target audiences within the investment research field are individual investors, colleges, libraries, and investment management professionals. Individuals come to Value Line for complete research in one package. Institutional licensees consist of corporations, financial professionals, colleges, and municipal libraries. Libraries and universities offer the Company’s detailed research to their patrons and students. Investment management professionals use the research and historical information in their day-to-day businesses. The Company has a dedicated department that solicits institutional subscriptions. Payments received for new and renewal subscriptions and the value of receivables for amounts billed to retail and institutional customers are recorded as unearned revenue until the order is fulfilled. As the orders are fulfilled, the Company recognizes revenue in equal installments over the life of the particular subscription. Accordingly, the subscription fees to be earned by fulfilling subscriptions after the date of a particular balance sheet are shown on that balance sheet as unearned revenue within current and long-term liabilities. The investment periodicals and related publications (retail and institutional) and fees from copyright data including the proprietaryValue Line copyrights and Value Line Proprietary Ranking System informationresults and other proprietary information consolidate into one segment called Publishing. The Company’s move to new headquarters in February 2017 resulted in lower rent expense over the term of the sublease.
AssetAsset 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’sCompany’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. Distribution is not less than 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 49.73%, 50.28% and 50.88% during the first, second and third quarters of fiscal 2018, respectively, and 49.45%, 49.14% and 49.19% during the first, second and third quarters of fiscal 2017, respectively. Pursuant to the EAM Declaration of Trust, 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 The nation's long business expansion which is now approachingappears to be securely in place as a decadenew year approaches. However, the acceleration in duration, continues to press ahead. On point, aftereconomic activity experienced in 2018, when the benefits of the Administration's major tax cut were peaking, has run its course, and growth has moved onto a trio of solid quarterly increasessomewhat slower track. This moderating trend was evidenced in the gross domestic productsecond and third quarters this year when growth slowed to close out2.0% and 2.1%, respectively. Still, with consumer spending reasonably strong, housing (underpinned by lower mortgage rates) holding its own, sentiment levels remaining quite high, and employment growth accelerating, GDP growth is likely to move along at a modest, but reassuring, 2%, or so, during the final nine monthsnext several quarters. Behind much of 2017, recent trendsthis more deliberate pace of the business upturn is the first multi-month contraction in employment, wage growth, personal incomemanufacturing activity in several years. Much of this shortfall is a consequence of the trade impasse between the United States and spending,China that had yet to be resolved as the old year wound down. True, the two sides are seeing some lessening in tensions, making at least a phased in détente highly likely and rather soon perhaps. However, there are sufficient unresolved issues at hand to make a longer-term arrangement more problematic. Through it all, it seems likely that we will muddle though without a business reversal for a year or more yet. But the margin for error is fairly small, and any notable deterioration on the trade front with China or some possible new headwinds blowing in on the political front could alter the picture somewhat. Looking at the investment backdrop, the persistence of low interest rates by the Federal Reserve (“Fed”), the seeming diminution in trade tensions, and the leading indicators suggest thatcontinuation of strong profit growth all have contributed to the opening three monthsstock market's further resilience. In fact, the likely continuation of this year will bring additional improvement. Encouragingly, this latest buildupcompelling combination should allow the equity market to at least hold its own in economic momentum seems likely to continue this year. True, there could be some early-year choppiness, as there often is during the seasonally low opening period, although weather-related issues have been less numerous than in recent years. Meanwhile, once spring arrives, GDP should kick into somewhat higher gear, with growth moving back up into the 3% range that was in place during the middle quarters of last year. The likely improvement should be driven by increases in infrastructure spending, gains in industrial activity, additional durability in housing, and solid levels of consumer spending by a public that, for the most part, has seen its wealth expand due to the historic bull market, increasing pay checks and rising real estate values.
Of course, few up cycles continue without interruption, and this one figures to be no exception. And although we do not see a recession on the horizon--with the current expansion likely to last into the early years of the next decade given the absence of growth or inflation excesses to date--there are risks that should not be dismissed. Chief among these would be the failure of fiscal initiative and monetary policy adjustments to keep the economic ball rolling without inviting major overheating. Other risks would be serious political headwinds at home or damaging flare-ups overseas.
For now, though, the business outlook continues to be bright and this is helping to keep the stock market at a high level, albeit with a few high-profile reversals along the way, as P/E ratios remain at the upper end of their historic range. coming months.
Results of Operations for the Three and NineSix Months Ended JanuaryOctober 31, 20182019 and JanuaryOctober 31, 20172018 The following table illustrates the Company’sCompany’s key components of revenues and expenses. | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | ($ in thousands, except earnings per share) | | 2018 | | | 2017 | | | Change | | | 2018 | | | 2017 | | | Change | | Income from operations including gain on sale of operating facility in fiscal 2017 | | $ | 787 | | | $ | (212 | ) | | #N/A | | | $ | 2,760 | | | $ | 7,948 | | | | -65.3 | % | Non-voting revenues and non-voting profits interests from EAM Trust | | $ | 2,284 | | | $ | 1,934 | | | | 18.1 | % | | | 6,657 | | | | 5,782 | | | | 15.1 | % | Income from operations plus non-voting revenues and non-voting profits interests from EAM Trust | | $ | 3,071 | | | $ | 1,722 | | | | 78.3 | % | | $ | 9,417 | | | $ | 13,730 | | | | -31.4 | % | Operating expenses | | $ | 8,307 | | | $ | 8,859 | | | | -6.2 | % | | $ | 24,237 | | | $ | 25,993 | | | | -6.8 | % | Income from securities transactions, net | | $ | 258 | | | $ | 132 | | | | 95.5 | % | | $ | 445 | | | $ | 226 | | | | 96.9 | % | Income before income taxes | | $ | 3,329 | | | $ | 1,854 | | | | 79.6 | % | | $ | 9,862 | | | $ | 13,956 | | | | -29.3 | % | Net income | | $ | 8,996 | | | $ | 1,445 | | | | 522.6 | % | | $ | 13,283 | | | $ | 9,283 | | | | 43.1 | % | Earnings per share | | $ | 0.93 | | | $ | 0.15 | | | | 520.0 | % | | $ | 1.37 | | | $ | 0.96 | | | | 42.7 | % |
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | | ($ in thousands, except earnings per share) | | 2019 | | | 2018 | | | Change | | | 2019 | | | 2018 | | | Change | | Income from operations | | $ | 2,629 | | | $ | 1,760 | | | | 49.4 | % | | $ | 4,654 | | | $ | 3,030 | | | | 53.6 | % | Non-voting revenues and non-voting profits interests from EAM Trust | | | 3,058 | | | | 2,384 | | | | 28.3 | % | | | 5,929 | | | | 4,655 | | | | 27.4 | % | Income from operations plus non-voting revenues and non-voting profits interests from EAM Trust | | $ | 5,687 | | | $ | 4,144 | | | | 37.2 | % | | $ | 10,583 | | | $ | 7,685 | | | | 37.7 | % | Operating expenses | | $ | 7,451 | | | $ | 7,291 | | | | 2.2 | % | | $ | 15,043 | | | $ | 14,992 | | | | 0.3 | % | Income from securities transactions, net | | $ | 143 | | | $ | 123 | | | | 16.3 | % | | $ | 284 | | | $ | 237 | | | | 19.8 | % | Income before income taxes | | $ | 5,830 | | | $ | 4,267 | | | | 36.6 | % | | $ | 10,867 | | | $ | 7,922 | | | | 37.2 | % | Net income | | $ | 4,211 | | | $ | 3,302 | | | | 27.5 | % | | $ | 7,901 | | | $ | 6,406 | | | | 23.3 | % | Earnings per share | | $ | 0.44 | | | $ | 0.34 | | | | 29.4 | % | | $ | 0.82 | | | $ | 0.66 | | | | 24.2 | % |
During the ninesix months ended JanuaryOctober 31, 2018,2019, the Company’s netCompany’s income from operations of $13,283,000, or $1.37 per share,$4,654,000 was $4,000,000 or 43.1%53.6% above net income from operations of $9,283,000, or $0.96 per share, for$3,030,000 during the ninesix months ended JanuaryOctober 31, 2017.2018. During the ninesix months ended JanuaryOctober 31, 20182019, there were 9,705,3479,658,734 average common shares outstanding as compared to 9,724,3779,689,388 average common shares outstanding during the ninesix months ended JanuaryOctober 31, 2017. Income from operations of $2,760,0002018. For the six months ended October 31, 2019, operating expenses were well controlled and were comparable to those during the ninesix months ended JanuaryOctober 31, 2018 was $5,188,000 below income from operations of $7,948,000, which included a pre-tax gain of $8,123,000 from2018. During the sale of the Company's operating facility during the ninesix months ended JanuaryOctober 31, 20172019, the Company’s net income of $7,901,000, or $0.82 per share, was 23.3% above net income of $6,406,000, or $0.66 per share, for which it received net proceeds of $11,555,000 on July 29, 2016.the six months ended October 31, 2018. During the three months ended JanuaryOctober 31, 2018,2019, the Company’s net income of $8,996,000,$4,211,000, or $0.93$0.44 per share, was $7,551,00027.5% above net income of $1,445,000,$3,302,000, or $0.15$0.34 per share, for the three months ended JanuaryOctober 31, 2017 due to2018. During the fiscal 2018 reduction in the U.S. statutory federal corporate income tax rate from 35% to 21% onthree months ended October 31, 2019, the Company’s long-term deferred tax liabilities, resulting in a tax benefitincome from operations of 65.87%$2,629,000 was 49.4% above income from operations of pre-tax income for$1,760,000 during the ninethree months ended JanuaryOctober 31, 2018. The Company re-calculated its net deferred tax assets and liabilities using the Federal Tax Rate under the Tax Act. The effect of the re-calculation is reflected entirelylargest factors in the third quarter ended January 31, 2018 (the period that includes the enactment date)increases in net income and is allocated directly to both current and deferred income tax expenses from continuing operations. The decrease in income from operations during the ninethree and six months ended JanuaryOctober 31, 2018, was partially offset by a $2,913,000 decrease in depreciation and amortization expense in2019, compared to the prior fiscal year 2018.were an increase in copyright fees, an increase from revenues and profits interests in EAM Trust and well controlled overall expenses. Total operating revenues | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | ($ in thousands) | | 2018 | | | 2017 | | | Change | | | 2018 | | | 2017 | | | Change | | Investment periodicals and related publications: | | | | | | | | | | | | | | | | | | | | | | | | | Print | | $ | 3,479 | | | $ | 3,446 | | | | 1.0 | % | | $ | 10,405 | | | $ | 10,601 | | | | -1.8 | % | Digital | | | 3,912 | | | | 4,022 | | | | -2.7 | % | | | 11,852 | | | | 12,146 | | | | -2.4 | % | Total investment periodicals and related publications | | | 7,391 | | | | 7,468 | | | | -1.0 | % | | | 22,257 | | | | 22,747 | | | | -2.2 | % | Copyright data fees | | | 1,703 | | | | 1,179 | | | | 44.4 | % | | | 4,740 | | | | 3,071 | | | | 54.3 | % | Total publishing revenues | | | 9,094 | | | | 8,647 | | | | 5.2 | % | | | 26,997 | | | | 25,818 | | | | 4.6 | % | Gain on sale of operating facility | | | - | | | | - | | | | n/a | | | | - | | | | 8,123 | | | | n/a | | Total revenues | | $ | 9,094 | | | $ | 8,647 | | | | 5.2 | % | | $ | 26,997 | | | $ | 33,941 | | | | -20.5 | % |
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | | ($ in thousands) | | 2019 | | | 2018 | | | Change | | | 2019 | | | 2018 | | | Change | | Investment periodicals and related publications: | | | | | | | | | | | | | | | | | | | | | | | | | Print | | $ | 3,109 | | | $ | 3,379 | | | | -8.0 | % | | $ | 6,290 | | | $ | 6,772 | | | | -7.1 | % | Digital | | | 3,840 | | | | 3,883 | | | | -1.1 | % | | | 7,692 | | | | 7,782 | | | | -1.2 | % | Total investment periodicals and related publications | | | 6,949 | | | | 7,262 | | | | -4.3 | % | | | 13,982 | | | | 14,554 | | | | -3.9 | % | Copyright fees | | | 3,131 | | | | 1,789 | | | | 75.0 | % | | | 5,715 | | | | 3,468 | | | | 64.8 | % | Total publishing revenues | | $ | 10,080 | | | $ | 9,051 | | | | 11.4 | % | | $ | 19,697 | | | $ | 18,022 | | | | 9.3 | % |
Within investment periodicals and related publications, subscription sales orders are derived from print and digital products. The following chart illustrates the changes in the sales orders associated with print and digital subscriptions. Sources of subscription sales | | | | Three Months Ended October 31, | | | Six Months Ended October 31, | | | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | | 2019 | | | | 2018 | | | | 2019 | | | | 2018 | | | | | 2018 | | | | | | | 2017 | | | | | | | 2018 | | | | | | | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | New Sales | | | 15.3 | % | | | 14.2 | % | | | 10.3 | % | | | 13.4 | % | | | 16.1 | % | | | 15.2 | % | | | 12.7 | % | | | 16.2 | % | | | 11.9 | % | | | 9.9 | % | | | 17.3 | % | | | 11.8 | % | | | 12.0 | % | | | 14.6 | % | | | 16.5 | % | | | 13.2 | % | Conversion and Renewal Sales | | | 84.7 | % | | | 85.8 | % | | | 89.7 | % | | | 86.6 | % | | | 83.9 | % | | | 84.8 | % | | | 87.3 | % | | | 83.8 | % | | | 88.1 | % | | | 90.1 | % | | | 82.7 | % | | | 88.2 | % | | | 88.0 | % | | | 85.4 | % | | | 83.5 | % | | | 86.8 | % | Total Gross Sales | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
During the ninesix months ended JanuaryOctober 31, 20182019 new sales of print publications increased as a percent of the total gross print sales as a result of an increase in new print retail sales orders while conversion and renewal sales of print orders decreased from the prior fiscal year. New sales of digital publications decreased as a percent of the total gross digital sales as a result of a decrease in new digital retail sales orders, related to a two-year trend of lower advertising expenditures. Conversion and renewal sales of digital services slightly increased as a percent of the total gross digital sales overversus the prior fiscal year due to an increase in new Institutional gross sales of digital publications. During the six months ended October 31, 2019 new sales of print publications decreased as a resultpercent of a slower decline than the decline in newtotal gross print sales versus the prior fiscal year due to efforts by our in-house Retail and Institutional Sales departments.the timing of advertising. | | | As of January 31, | | | As of April 30, | | | As of January 31, | | | Change | | | As of October 31, | | | As of April 30, | | | As of October 31, | | | Change | | ($ in thousands) | | 2018 | | | 2017 | | | 2017 | | | Jan-18 vs. Apr-17 | | | Jan-18 vs. Jan-17 | | | 2019 | | | 2019 | | | 2018 | | | Oct-19 vs. Apr-19 | | | Oct-19 vs. Oct-18 | | Unearned subscription revenue (current and long-term liabilities) | | $ | 24,112 | | | $ | 25,659 | | | $ | 24,239 | | | | -6.0 | % | | | -0.5 | % | | $ | 22,749 | | | $ | 25,483 | | | $ | 23,201 | | | -10.7% | | | -1.9% | |
Unearned subscription revenue as of JanuaryOctober 31, 2019 is 1.9% below October 31, 2018 is comparable to January 31, 2017 and is 6.0%10.7% below April 30, 2017. The decline from April 30, 2017, reflects both2019. Variation is to be expected due to the level and timing of advertising for order generation, and the fact that April 30th is the usual annual peak. A certain amount of variation is to be expected due to the volume of new orders and timing of renewal orders, direct mail campaigns and large Institutional Sales orders. Unearned subscription revenue typically perks at April 30th (the end of the Company’s fiscal year). Investment periodicals and related publications revenues Investment periodicals and related publications revenues of $22,257,000$13,982,000 decreased $490,000, or 2.2%3.9%, forduring the ninesix months ended JanuaryOctober 31, 2018,2019, as compared to the prior fiscal year. The Company continued its effortsactivity 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 JanuaryOctober 31, 20182019 was 3.7%6.1% below total product line circulation at JanuaryOctober 31, 2017. The Company has been successful in growing revenues from digitally-delivered investment periodicals within2018. During the institutional market.six months ended October 31, 2019 Institutional Sales department generated total sales orders of $9,789,000 for$5,742,000 and the nine months ended January 31, 2018 which were 1.1%, above comparable total sales orders of $9,687,000 for the nine months ended January 31, 2017. Revenues from institutional subscribers increased 1.6% above the prior fiscal year. This revenue growth continues a positive trend for Institutional Sales, but is not sufficient to wholly offset the lost revenues from retail subscribers. We have also benefited from the ability to realize modest price increases as well as “converting” an increased volume of customers from lower cost retail to the more robust professional priced services. The retail telemarketing sales team generated total sales orders of $6,102,000 for the nine months ended January 31, 2018 which compares to $6,661,000 in the prior fiscal year. $3,581,000. Print publication revenues of $10,405,000$6,290,000 decreased $196,000 or 1.8% for7.1% during the ninesix months ended JanuaryOctober 31, 20182019 as compared to the prior fiscal year. Revenues from institutional print publications increased $146,000 or 8.6% while print publications revenues from retail subscribers decreased $342,000 or 3.8% for the nine months ended January 31, 2018,year as compared to the prior fiscal year. Total print circulation at January 31, 2018 was 3.1% abovea result of a 7.1% decline in total print circulation in fiscal 2020. Total digital circulation at JanuaryOctober 31, 2017. Digital2019 was 4.6% below total digital circulation at October 31, 2018 and digital publications revenues of $11,852,000$7,692,000 during the ninesix months ended JanuaryOctober 31, 20182019 were $294,000 or 2.4%1.2% below the prior fiscal year. Revenues from institutional digital publications increased less than 1% as comparedThe decreases are attributable in part to the prior fiscal year. Digital publications revenues frommore selective advertising to generate entry-level new retail subscribers decreased $315,000 or 9.5% as compared to the prior fiscal year. Total digital circulation at January 31, 2018 was 12.6% below total digital circulation at January 31, 2017. subscriptions. Value Line serves primarily individual and professional investors in stocks, who pay primarilygenerally on annual subscription plans, for basic services or as much as $100,000 or more annually for comprehensive 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 including periods of intensive promotion of “starter” services and publications. Further, new services and new features for existing services are regularly under consideration and development. Prominently introduced during the second quarter was a new set of features in our Research Center, constitutes the new Value Line ETFs service. Copyright data fees
The Value Line proprietaryProprietary Ranking System informationresults (the “Ranking System”), a component of the Company’sCompany’s flagship product, The Value Line Investment Survey, is also utilized in the Company’s copyright data business. The Ranking System is made available to EAM for specific uses without charge. The Ranking System is designed to be predictive over a six to twelve month period. ForDuring the six month period ended JanuaryOctober 31, 2018,2019, the combined Ranking System “Rank 1 & 2” stocks’ increase of 13.2%3.2% outperformed the Russell 2000 index’s increaseIndex’s decrease of 10.5%1.8% during the comparable period. ForDuring the twelve month period ended JanuaryOctober 31, 2018,2019, the combined Ranking System “Rank 1 & 2” stocks’ increase of 16.0%9.7% outperformed to the Russell 2000 index’sIndex’s increase of 15.7%3.4% during the comparable period. Copyright fees During the three and ninesix months ended JanuaryOctober 31, 2018,2019, copyright data fees of $1,703,000 and $4,740,000, respectively,$5,715,000 were 44.4% and 54.3%, respectively,64.8% above those during the corresponding period in the prior fiscal year. AsThe largest of January 31, 2018, total third party sponsored assets were attributable to three contracts forthe individual ETFs active under Value Line’s copyright data representing $4.4 billion in various products, as compared to three contracts for copyright data representing $3.2 billion in assets at January 31, 2017. program has again earned a five star overall Morningstar rating. The Company believes this partdiscussed with the sponsor of the business is dependent upon the desire of third parties to use the Value Line trademarks and proprietary research for their products, on competition and on fluctuations in segments of the equity markets. Our quantitative specialists are seeking to develop and confirm reliable models for additional copyright data products. Gain on sale of operating facility
On July 29, 2016, Value Line closed the sale of its 85,000 sq. ft. distribution, fulfillment and warehouse operating facility located at 125 East Union Avenue, East Rutherford, NJ, received net proceeds of $11,555,000 and reported an increment to net profits after taxour largest exchange traded fund (“ETF”) during the firstsecond quarter of fiscal 20172020 the restructuring of the Company’s asset based fees and overall fees of the ETF in light of the competitive market. The Company’s fees could be reduced by approximately $5.2 million. The distribution, fulfillment and warehouse operations were relocatedfive to an alternative 24,110 sq. ft. leased facility.ten percent during fiscal 2020, based on the current level of assets under management in the ETF, although notably such assets have continued to grow steadily.
Investment management fees and services – (unconsolidated) The Company has a substantial non-voting revenues and non-voting profits interests in EAM, the asset manager to the Value Line Mutual Funds. Accordingly,Since the Company’s interest is non-controlling and non-voting, the Company does not report this operation as a separate business segment, although it maintains a significant interest in the cash flows generated by this business and will receive ongoing payments in respect of its non-voting revenues and non-voting profits interests. Total assets in the Value Line Funds managed and/or distributed by EAM at JanuaryOctober 31, 2018,2019, were $2.6$3.50 billion, which is $300$930 million, or 13%36%, above total assets of $2.2$2.57 billion in the Value Line Funds managed and/or distributed by EAM at JanuaryOctober 31, 2017.2018. The increase reflects successful investment selection capturing market appreciation and positive net flows for the Value Line Funds, partially offset by net redemptions in nineeight of the eleven Value Line Funds over the twelve month period ended JanuaryOctober 31, 2018.2019. Shares of Value Line Strategic Asset Management Trust (“SAM”) and Value Line Centurion Fund (“Centurion”) are only distributed within certain variable annuity and variable life insurance contracts issued by The Guardian Insurance & Annuity Company, Inc. (“GIAC”); new contracts of this type are no longer sold.. Value Line Mutual Funds | | | As of January 31, | | | As of October 31, | | ($ in millions) | | 2018 | | | 2017 | | | Change | | | 2019 | | | 2018 | | | Change | | Variable annuity assets ("GIAC") | | $ | 418 | | | $ | 419 | | | | -0.2 | % | | $ | 405 | | | $ | 376 | | | | 7.7 | % | All other open end equity and hybrid fund assets | | | 2,078 | | | | 1,754 | | | | 18.5 | % | | | 2,986 | | | | 2,091 | | | | 42.8 | % | Total equity and hybrid funds | | | 2,496 | | | | 2,173 | | | | 14.9 | % | | | 3,391 | | | | 2,467 | | | | 37.5 | % | Fixed income funds | | | 116 | | | | 129 | | | | -10.1 | % | | | 107 | | | | 107 | | | | 0 | % | Total EAM managed net assets | | $ | 2,612 | | | $ | 2,302 | | | | 13.5 | % | | $ | 3,498 | | | $ | 2,574 | | | | 35.9 | % |
The Daily Income Fund managed by Reich & Tang Asset Management LLC was liquidated on July 29, 2015. Since then theThe Value Line Fund shareholders have beenare provided a money market fund alternative investment managed by Federated Government Obligations Fund.
EAM has successfully broadened distribution, particularly within the Adviser/Independent Broker Dealer (“IBD”) channel. Assets in that channel are up $105 million or 17% year over year as a result of market appreciation. The channel accounts for approximately 61% of gross sales for the year. Due to stronger gross annual sales than that of the prior year, the Advisor/IBD channel continues to be positive and the leading channel for net sales for the period. The marketing efforts have led to clients of over 4,000 financial advisers (individual reps or RIAs) owning a Value Line fund as of January 31, 2018. The largest distribution channel for the Value Line Funds remains the fund supermarket platforms such as Charles Schwab & Co., Inc., Fidelity, Pershing and E-Trade.
As of JanuaryOctober 31, 2019 and October 31, 2018, fourfive of six Value Line equity and hybrid mutual funds, excluding SAM and Centurion, held an overall four or five star rating by Morningstar, Inc. As of January 31, 2018, three of the six equity and hybrid funds were in the top quintile of their respective peer groups for the one year period, and three of the six funds were in the top quintile for the three year period according to Morningstar. Several of the Value Line Funds have received national recognition. The Value Line Asset Allocation Fund was the top performing balanced fund in 2018 of any allocation fund in Morningstar’s allocation categories. The Value Line Mid-Cap Focused Fund, the Value Line Small Cap Opportunities Fund and the Value Line Income and GrowthCapital Appreciation Fund have been named “Category Kings” in The Wall Street Journal (“Journal”) in multiple months in calendar 2017recent years. In 2019 the Value Line Mid-Cap Focused Fund reached the .Journal’s Winner’s Circle for U.S. equity funds. EAM Trust - Results of operations before distribution to interest holders
The overall results of EAM’sEAM’s investment management operations during the ninesix months ended JanuaryOctober 31, 2018,2019, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $12,096,000,$10,610,000, 12b-1 fees and other fees of $4,844,000$4,065,000 and other income of $156,000 which included dividend, interest and licensing fees income.$58,000. For the same period, total investment management fee waivers were $392,000$218,000 and 12b-1 fee waivers for foursix Value Line Funds were $583,000.$339,000. During the ninesix months ended JanuaryOctober 31, 2018,2019, EAM's net income was $1,166,000$1,146,000 after giving effect to Value Line’s non-voting revenues interest of $6,074,000,$5,356,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest. The overall results of EAM’sEAM’s investment management operations during the ninesix months ended JanuaryOctober 31, 2017,2018, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $10,991,000,$8,290,000, 12b-1 fees and other fees of $4,357,000$3,431,000 and other income of $136,000$44,000 which includes,included dividend, interest and licensing fees income. For the same period, total investment management fee waivers were $308,000$221,000 and 12b-1 fee waivers for four Value Line Funds were $700,000.$334,000. During the ninesix months ended JanuaryOctober 31, 2017,2018, EAM's net income was $786,000$1,184,000 after giving effect to Value Line’s non-voting revenues interest of $5,389,000,$4,063,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest. As of JanuaryOctober 31, 2018,2019, three of the Value Line Funds have all or a portion of the 12b-1 fees being waived, and one fund has a partial investment management fee waiverswaiver in place. Although, under the terms of the EAM Declaration of Trust, the Company no longer receivesdoes not receive or sharesshare in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets. The Value Line equity and hybrid fundsfunds’ assets represent 79.6%85.4%, variable annuity funds issued by GIAC represent 16.0%11.6%, and fixed income fund assets represent 4.4%3.0%, respectively, of total fund assets under management (“AUM”) as of JanuaryOctober 31, 2018.2019. At JanuaryOctober 31, 2018,2019, equity, hybrid and GIAC variable annuities AUM increased by 14.9%37.5% and fixed income AUM decreased by 10.1% as comparedwere comparable to the prior fiscal year.2019. EAM - The Company’sCompany’s non-voting revenues and non-voting profits interests The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business, andand 50% of EAM’s net profits, not less than 90% of which is distributed in cash every fiscal quarter. The applicable recent non-voting revenues interest percentage for the second quarter of fiscal 2020 was 50.71%. The Company recorded income from its non-voting revenues interest and its non-voting profits interest in EAM as follows: | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | Three Months Ended October 31, | | | Six Months Ended October 31, | | ($ in thousands) | | 2018 | | | 2017 | | | Change | | | 2018 | | | 2017 | | | Change | | | 2019 | | | 2018 | | | Change | | | 2019 | | | 2018 | | | Change | | Non-voting revenues interest | | $ | 2,057 | | | $ | 1,803 | | | | 14.1 | % | | $ | 6,074 | | | $ | 5,389 | | | | 12.7 | % | | $ | 2,768 | | | $ | 2,095 | | | | 32.1 | % | | $ | 5,356 | | | $ | 4,063 | | | | 31.8 | % | Non-voting profits interest | | | 227 | | | | 131 | | | | 73.3 | % | | | 583 | | | | 393 | | | | 48.3 | % | | | 290 | | | | 289 | | | | 0.3 | % | | | 573 | | | | 592 | | | | -3.2 | % | | | | $ | 2,284 | | | $ | 1,934 | | | | 18.1 | % | | $ | 6,657 | | | $ | 5,782 | | | | 15.1 | % | | $ | 3,058 | | | $ | 2,384 | | | | 28.3 | % | | $ | 5,929 | | | $ | 4,655 | | | | 27.4 | % |
During the nine months ended January 31, 2018 and January 31, 2017, the Company recorded revenues of $6,657,000 and $5,782,000, respectively, consisting of $6,074,000 and $5,389,000, from its non-voting revenues interest in EAM and $583,000 and $393,000, from its non-voting profits interest in EAM without incurring any directly related expenses.
Operating expenses | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | Three Months Ended October 31, | | | Six Months Ended October 31, | | ($ in thousands) | | 2018 | | | 2017 | | | Change | | | 2018 | | | 2017 | | | Change | | | 2019 | | | 2018 | | | Change | | | 2019 | | | 2018 | | | Change | | Advertising and promotion | | $ | 1,096 | | | $ | 908 | | | | 20.7 | % | | $ | 2,718 | | | $ | 2,436 | | | | 11.6 | % | | $ | 702 | | | $ | 642 | | | | 9.3 | % | | $ | 1,645 | | | $ | 1,562 | | | | 5.3 | % | Salaries and employee benefits | | | 4,739 | | | | 4,621 | | | | 2.6 | % | | | 13,813 | | | | 12,830 | | | | 7.7 | % | | | 4,391 | | | | 4,268 | | | | 2.9 | % | | | 8,776 | | | | 8,747 | | | | 0.3 | % | Production and distribution | | | 1,524 | | | | 2,134 | | | | -28.6 | % | | | 4,322 | | | | 6,958 | | | | -37.9 | % | | | 1,245 | | | | 1,268 | | | | -1.8 | % | | | 2,410 | | | | 2,583 | | | | -6.7 | % | Office and administration | | | 948 | | | | 1,196 | | | | -20.7 | % | | | 3,384 | | | | 3,769 | | | | -10.2 | % | | | 1,113 | | | | 1,113 | | | | 0.0 | % | | | 2,212 | | | | 2,100 | | | | 5.3 | % | Total expenses | | $ | 8,307 | | | $ | 8,859 | | | | -6.2 | % | | $ | 24,237 | | | $ | 25,993 | | | | -6.8 | % | | $ | 7,451 | | | $ | 7,291 | | | | 2.2 | % | | $ | 15,043 | | | $ | 14,992 | | | | 0.3 | % |
Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, office and administration. Operating expenses of $24,237,000 for$15,043,000 during the ninesix months ended JanuaryOctober 31, 2018 decreased $1,756,000, or 6.8%, as compared2019 were comparable to those during the ninesix months ended JanuaryOctober 31, 2017 primarily due to2018. Production and distribution expense categories decreased 6.7% as a $2,913,000 decrease in depreciation and amortization expense partially offset by a $282,000 increase in advertising expensesresult of cost controls and a $983,000 increasedecline in salaries and employee benefits in fiscal 2018. Duringamortization of internally developed software during the six months ended October 31, 2019. Operating expenses of $7,451,000 during the three months ended JanuaryOctober 31, 2018 operating expenses of $8,307,000 decreased $552,000, or 6.2%, as compared to2019 were 2.2% above those during the three months ended JanuaryOctober 31, 20172018 primarily due to a $619,000 decrease in depreciation and amortization expense partially offset by a $188,000an increase in advertising expenses and a $118,000 increase in salaries and employee benefitspromotion expenses during the thirdsecond quarter of fiscal 2018 as compared to the third quarter of the prior fiscal year.2020.
Advertising and promotion During the three and ninesix months ended JanuaryOctober 31, 2018,2019, advertising and promotion expenses of $1,096,000$702,000 and $2,718,000,$1,645,000, respectively, increased $188,0009.3% and $282,000, respectively,5.3% as compared to the prior fiscal year primarily due toyear. During the six months ended October 31, 2019, an increase in media advertising expense. Direct marketing expenses of $889,000 during the nine months ended January 31, 2018 increased $170,000and institutional sales promotion was partially offset by a 9.5% decrease in direct mail expenses and a 3.1% decrease in sales commissions as compared to the prior fiscal year due to the increases in expenses for TheValue Line Investment Survey and The Value Line Special Situations in fiscal 2018. 2019. Salaries and employee benefits During the three and ninesix months ended JanuaryOctober 31, 20182019, salaries and employee benefits of $4,739,000$4,391,000 and $13,813,000,$8,776,000, respectively, increased $118,0002.9% and $983,000, respectively,0.3% above those of the prior fiscal year’s which included the effect of a decrease of $215,000 in the capitalization of internal salaries and benefits expenses for digital project development during the nine months ended January 31, 2018, as compared to the prior fiscal year. The remaining increases inIn fiscal 2020 salaries and employee benefits primarily in the Information Technology department (“IT”) relateddecreased 3.9%, reflecting completion of certain initiatives to the Company’s digital infrastructure and production processes, and Research and Quantitative Research departments. upgrade operating systems. Production and distribution During the three and ninesix months ended JanuaryOctober 31, 20182019, production and distribution expenses of $1,524,000$1,245,000 and $4,322,000,$2,410,000, respectively, decreased $610,0001.8% and $2,636,000, respectively, as compared to6.7% below the prior fiscal year. During the ninesix months ended JanuaryOctober 31, 20182019, a $72,000 decrease was related to production support of the Company’s website, maintenance of the Company’s publishing and application software and operating systems in fiscal year 2020 and a decrease of $2,945,000$48,000 was attributable to a decline in amortization of internally developed software costs related to digital security and productpublication production software. Duringsoftware as compared to fiscal 2019. In fiscal 2020 printing and distribution costs decreased $38,000 due to a 7.1% decrease in print circulation during the ninesix months ended JanuaryOctober 31, 2018 the decrease in production costs was partially offset by a $280,000 increase in production support of the Company’s website, maintenance of the Company’s publishing and application software and operating systems and web “framework”.2019. Office and administration During the three and ninesix months ended JanuaryOctober 31, 20182019, office and administrationadministrative expenses of $948,000$1,113,000 and $3,384,000,$2,212,000, respectively, decreased $248,000increased 0% and $385,000, respectively, as compared to5.3% above the prior fiscal year. DuringThe increase of $117,000 during the ninesix months ended JanuaryOctober 31, 2018 a decrease in office and administration expenses2019 was primarily as a result of a $321,000 decreaseoperating lease amortization expense in the cost of space rentalfiscal 2020 due to lower rent payments resulting from the sub-lease agreement with ABM Industries, Incorporated (“ABM” or the “Sublandlord”). In accordance with GAAP, we allocated the benefit of the free rent period and other concessions over the term of our new NYC sublease, commenced on December 1, 2016. In fact, however, the Company did not pay cash rent for the new New York City office facility from December 2016 through October 2017. Additional decreases include $109,000 savingsa change in real estate taxes due to the relocation of VLDC operations to a new leased NJ facility upon the sale of the operating facility in July 2016 and relocation of the NYC office to a new smaller facility at 551 Fifth Ave., NY in February 2017.lease accounting standard ASU 2016-02,"Leases (Topic 842)". ConcentratioConcentrationn
During the ninesix months ended JanuaryOctober 31, 2018, 17%2019, 29.0% of total publishing revenues of $26,997,000$19,697,000 were derived from a single customer.customer. Income from Securities Transactions, net During the threesix months ended JanuaryOctober 31, 20182019 and JanuaryOctober 31, 20172018, the Company’s income from securities transactions, net, primarily derived from dividend and interest income, was $258,000$284,000 and $132,000,$237,000, respectively. During the nine months ended January 31, 2018 and January 31, 2017 the Company’s income from securities transactions, net, primarily derived from dividend income, was $445,000 and $226,000, respectively. There were no sales, or gains or losses from sales of equity securities during the nine months ended January 31, 2018. Proceeds from maturities and sales of government debt securities classified as available-for-sale during the ninesix months ended JanuaryOctober 31, 2019 and October 31, 2018, were $1,634,000. Proceeds from equity securities classified as available-for-sale were $152,000$4,974,000 and $14,000 during the nine months ended January 31, 2018 and January 31, 2017,$4,638,000, respectively. There were no sales or proceeds from sales of government debtequity securities in fiscal 2017. In fiscal 2018 income from securities transactions, net, included capital gain distribution from ETFs of $152,000 which compares to capital gain distribution from ETFs of $39,000 in fiscal 2017. Lease Commitments
In February 2017 the Company's headquarters and offices moved to a new location. On November 30, 2016, Value Line, Inc., received consent from the landlord at 551 Fifth Avenue, New York, NY to the terms of a new sublease agreement between Value Line, Inc. and ABM Industries, Incorporated commencing on December 1, 2016. Pursuant to the agreement Value Line leased from ABM 24,726 square feet of office space located on the second and third floors at 551 Fifth Avenue, New York, NY (“Building” or “Premises”) beginning on December 1, 2016 and ending on November 29, 2027. Base rent under the sublease agreement is $1,126,000 per annum during the first year with an annual increase in base rent of 2.25% scheduled for each subsequent year, payable in equal monthly installments on the first day of each month, subject to customary concessions in the Company’s favor and pass-through of certain increases in utility costs and real estate taxes over the base year. The Company provided a security deposit represented by a letter of credit in the amount of $469,000 in October 2016, which is scheduled to be reduced to $305,000 on September 30, 2021 and fully refunded after the sublease ends. This Building became the Company’s new corporate office facility. The Company is required to pay for certain operating expenses associated with the Premises as well as utilities supplied to the Premises. The sublease terms provide for a significant decrease (23% initially) in the Company’s annual rental expenditure taking into account free rent for the first six months of the sublease. Sublandlord provided Value Line a work allowance of $417,000 which accompanied with the six months free rent worth $563,000 was applied against the Company’s obligation to pay rent at our NYC headquarters, delaying the actual rent payments until November 2017.ended October 31, 2019 or October 31, 2018.
On February 29, 2016, the Company’s subsidiary Value Line Distribution Center (“VLDC”) and Seagis Property Group LP (the “Landlord”) entered into a lease agreement, pursuant to which VLDC has leased 24,110 square feet of warehouse and appurtenant office space located at 205 Chubb Ave., Lyndhurst, NJ (“Warehouse”) beginning on May 1, 2016 and ending on April 30, 2024 (“Lease”). Base rent under the Lease is $192,880 per annum payable in equal monthly installments on the first day of each month, in advance during fiscal 2017 and will gradually increase to $237,218 in fiscal 2024, subject to customary increases based on operating costs and real estate taxes. The Company provided a security deposit in cash in the amount of $32,146, which will be fully refunded after the lease term expires. The lease is a net lease requiring the Company to pay for certain operating expenses associated with the Warehouse as well as utilities supplied to the Warehouse.
Effective income tax rate The overall effective income tax rates, as a percentage of pre-tax ordinary income for the ninesix months ended JanuaryOctober 31, 2019 and October 31, 2018 were 27.29% and January 31, 2017 were (34.69%) and 33.48%19.14%, respectively. The aforementioned reductionincrease in the incomeeffective tax rate resultsduring the quarter ended October 31, 2019 is primarily a result of an increase in the state and local income taxes as a tax benefitresult of 65.87% of pre-tax income for the nine months ended January 31, 2018, primarily attributable tochanges in state and local tax legislation and the effect from lowering the New York City tax allocation factor on the long-term deferred tax liability. The Company re-calculated its net deferred tax assets and liabilities using the Federal Tax Rate under the Tax Act. The effect of the re-calculation is reflected entirelytaxes in the third quarter ended January 31, 2018 (the period that includes the enactment date) and is allocated directly to both current and deferred income tax expenses from continuing operations.fiscal 2019. The Company's annualized overall effective tax rate fluctuates due to a number of factors, in addition to the newchanges in tax law, including but not limited to an increase or decrease in the ratio of items that do not have tax consequences to pre-tax income, the Company's geographic profit mix between tax jurisdictions, taxation method adopted by each locality, new interpretations of existing tax laws and rulings and settlements with tax authorities. Leases The FASB issued ASU 2016-02,"Leases (Topic 842)", in February 2016. ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also requires certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted ASU 2016-02 using a modified retrospective transition approach as of the Effective Date as permitted by the amendments in ASU 2018-11, which provides an alternative modified retrospective transition method. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption (i.e. May 1, 2019). The Company has elected to employ the transitionary relief offered by the FASB and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized. The Company leases office space in New York, NY and a warehouse and appurtenant office space in Lyndhurst, NJ. The Company has evaluated these leases and determined that they are operating leases under the definitions of the guidance of ASU 2016-02. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the right-of-use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Liquidity and Capital Resources The Company had working capital, defined as current assets less current liabilities, of $2,008,000$8,258,000 as of JanuaryOctober 31, 20182019 and working capital of $1,200,000$6,014,000 as of April 30, 2017.2019. These amounts include short termshort-term unearned revenue of $18,361,000$18,040,000 and $20,188,000$20,008,000 reflected in total current liabilities at JanuaryOctober 31, 20182019 and April 30, 2017,2019, respectively. Cash and short termshort-term securities were $22,622,000$26,321,000 and $23,133,000$28,321,000 as of JanuaryOctober 31, 20182019 and April 30, 2017,2019, respectively. The Company’sCompany’s cash and cash equivalents include $3,716,000$3,955,000 and $6,066,000$5,617,000 at JanuaryOctober 31, 20182019 and April 30, 2017,2019, respectively, invested primarily in savings accounts at commercial banks and in Money Market Funds at brokers, which operate under Rule 2a-7 of the 1940 Securities and Exchange Act and invest primarily in short termshort-term U.S. government securities. Cash from operating activities The Company had cash outflowsinflows from operating activities of $2,232,000$1,802,000 during the ninesix months ended JanuaryOctober 31, 20182019 compared to cash outflowsinflows from operationsoperating activities of $5,241,000$3,416,000 during the ninesix months ended JanuaryOctober 31, 2017.2018. The decrease in cash outflowsinflows from fiscal 20172019 to fiscal 2018 was2020 is primarily attributable to the payment of federal state and local income taxes on the saletiming of the Company’s operating facilityreceipt of copyright fees as compared to the prior fiscal year and a decline in fiscal 2017, partially offset by the timing of receiptsunearned revenues from accounts receivable, payments of invoices to relocate the Company’s operating facilities and the timing ofsubscriber prepaid expenses. orders for publications.
Cash from investing activities The Company’sCompany’s cash inflows from investing activities of $5,327,000$594,000 during the ninesix months ended JanuaryOctober 31, 2018,2019 compared to cash inflowsoutflows from investing activities of $4,293,000$1,044,000 for the ninesix months ended JanuaryOctober 31, 2017. During2018. Cash inflows for the six months ended October 31, 2019 were higher than in fiscal 2018, the Company continued2019 primarily due to investa decline in purchases of fixed income securities. Duringsecurities partially offset by the nine months ended January 31, 2017, the Company invested $11,089,000 in fixed income andadditional equity securities from the net proceeds of $11,555,000 received from sale of the Company’s operating facility and invested $469,000investments in a bank money market fund and pledged this investment to represent cash securing a Bank Letter of Credit issued to the sublandlord as a security deposit for the Company's new leased corporate office facility.fiscal 2020.
Cash from financing activities During the ninesix months ended JanuaryOctober 31, 2018,2019, the Company’s cash outflows from financing activities were $5,434,000$4,258,000 and compared to cash outflows from financing activities of $5,646,000$3,728,000 for the ninesix months ended JanuaryOctober 31, 2017.2018. Cash outflows for financing activities included $191,000$393,000 and $681,000$46,000 for the repurchase of 11,15016,493 shares and 41,4612,286 shares of the Company’s common stock under the October 19, 2018 and the September 19, 2012 board approved common stock repurchase program,programs, during fiscal years 20182020 and 2017,2019, respectively. Quarterly dividend payments of $0.18$0.20 per share during the nine months ended January 31, 2018fiscal 2020 aggregated $5,243,000 as$3,865,000 and compared to $4,965,000 aggregated quarterly dividend payments of $0.17$0.19 per share during the nine months ended January 31, 2017.fiscal 2019 which aggregated $3,682,000. On January 19, 2018, the Board of Directors of Value Line declared a quarterly dividend of $0.18 per share and a special dividend of $0.20 per share. At JanuaryOctober 31, 20182019 there were 9,700,5159,647,068 common shares outstanding as compared to 9,715,1289,689,334 common shares outstanding at JanuaryOctober 31, 2017.2018. The Company expects financing activities to continue to include use of cash payments for dividend payments and common share repurchasesdividends for the foreseeable future.
Management believes that the Company’sCompany’s cash and other liquid asset resources used in its business together with the future cash flows from operations and from the Company’s non-voting revenues and non-voting profits interests in EAM will be sufficient to finance current and forecasted liquidity needs for the next twelve months. Management does not anticipate making any borrowings during the next twelve months. As of JanuaryOctober 31, 2018,2019, and April 30, 2019, retained earnings were $52,636,000 and $48,598,000, respectively, and liquid assets were $45,288,000$26,321,000 and $22,622,000,$28,321,000, respectively. Seasonality Our publishing revenues are comprised of subscriptions which are generally annual subscriptions, paid in advance.subscriptions. Our cash flows from operating activities are minimally seasonal in nature, primarily due to the timing of customer payments made for orders and subscription renewals. It is not believed that variations in timing of customer payments reflect any issues in financial reliability of customers. Off-balance sheet arrangements We are not a party to any off-balance sheet arrangements, other than operating leases entered into in the ordinary course of business. Recent Accounting Pronouncements In November 2015, the FASB issued ASU 2015-17, Income taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. Under existing standards, deferred taxes for each tax-paying jurisdiction are presented as a net current asset or liability and net long-term asset or liability. To simplify presentation, the new guidance will require that all deferred tax assets and liabilities, along with related valuation allowances, be classified as long-term on the balance sheet. As a result, each tax-paying jurisdiction will now only have one net long-term asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, which will be our fiscal year 2018 beginning May 1, 2017. Due to the full valuation allowance on our U.S. deferred tax assets, we do not expect the adoption of ASU 2015-17 to have a material impact on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases“Leases (Topic 842) (“ASU 2016-02")”. The core principle of Topic 842This ASU requires that, for leases longer than one year, a lessee should recognize in the assetsstatements of financial position a right-of-use asset, representing the right to use the underlying asset for the lease term, and liabilitiesa lease liability, representing the liability to make lease payments. It also requires that for finance leases, a lessee recognize interest expense on the balance sheet and disclose key information about leasing arrangements.lease liability, separately from the amortization of the right-of-use asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. The amendmentsCompany adopted this ASU in ASU 2016-2 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The guidance is required to be adopted at the earliest period presented usingMay 2019 under a modified retrospective approach. The Company is in the process of evaluating the impact of this standard on the consolidated financial statements.approach (see Note 12). In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments ( a(a consensus of the Emerging Issues Task Force) ( “(“ASU 2016-15”)., effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230, Statement of Cash Flows. The amendments inCompany has adopted ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company is in the processfirst quarter of evaluating the impact of this standard on the consolidated financial statements.fiscal 2019. In May 2014, theThe FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In addition, ASU No. 2014-09 requires disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU No. 2014-09 supersedes most existing U.S. GAAP revenue recognition principles, and it permits the use of either the retrospective or cumulative effect transition method. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated condensed financial statements and related disclosures, as well as the expected method of adoption. The Company plans to adopthas adopted ASU No. 2014-09 in the first quarter of fiscal 2019, andwhich does not believe it will have a material impact on itsthe Company's consolidated condensed financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)", effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. This ASU requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The Company has adopted ASU No. 2016-18 in the first quarter of fiscal 2019, which does not have a material impact on the Company's consolidated condensed financial statements and related disclosures. On June 21, 2018, the United States Supreme Court reversed the 1992 ruling in Quill, which protected firms delivering items by common carrier into a state where it had no physical presence from having to collect sales tax in such state. The Company is complying with applicable state laws. Critical Accounting Estimates and Policies The Company prepares its Consolidated Condensed Financial Statements in accordance with accepted accounting principlesGenerally Accepted Accounting Principles as in effect in the United States (U.S. “GAAP”). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent, and the Company evaluates its estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies reflect the significant judgments and estimates used in the preparation of its Consolidated Condensed Financial Statements. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market Risk Disclosures The Company’sCompany’s Consolidated Condensed Balance Sheet includes a substantial amount of assets whosethe fair values of which are subject to market risks. The Company’s market risks are primarily associated with interest rates and equity price risk. The following sections address the significant market risks associated with the Company’s investment activities. Interest Rate Risk The Company’s strategy has been to acquire debt securities with low credit risk. Despite this strategy management recognizes and accepts the possibility that losses may occur. To limit the price fluctuation in these securities from interest rate changes, the Company’s management invests primarily in short-term obligations maturing within one year. The fair values of the Company’sCompany’s fixed maturity investments will fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by prepayment options, relative values of alternative investments, and other general market conditions. Fixed income securities consist of certificates of deposits and securitiessecurities issued by federal, state and local governments within the United States. As of JanuaryOctober 31, 20182019 and April 30, 20172019 the aggregate cost of fixed income securities classified as available-for-sale were $8,486,000$9,661,000 and $7,484,000,$11,163,000, respectively, and fair value was $8,478,000$9,758,000 and $7,479,000,$11,206,000, respectively. The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets that are subject to interest rate risk. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table. Fixed Income Securities | | | | | | | Estimated Fair Value after Hypothetical Change in Interest Rates | | | Estimated Fair Value after Hypothetical Change in Interest Rates (in thousands) | | | | | | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (bp = basis points) | | | | | | | | | (bp = basis points) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6 mos. | | | 6 mos. | | | 1 yr. | | | 1 yr. | | | | | | | | | 6 mos. | | | 6 mos. | | | 1 yr. | | | 1 yr. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair | | | 50bp | | | 50bp | | | 100bp | | | 100bp | | | | | Fair | | | 50bp | | | 50bp | | | 100bp | | | 100bp | | | Value | | | increase | | | decrease | | | increase | | | decrease | | | | | Value | | | increase | | | decrease | | | increase | | | decrease | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of January 31, 2018 | | | | | | | | | | | | | | | | | | | | | | As of October 31, 2019 | | | | | | | | | | | | | | | | | | | | | | Investments in securities with fixed maturities | | $ | 8,478 | | | $ | 8,550 | | | $ | 8,548 | | | $ | 8,673 | | | $ | 8,583 | | | $ | 9,758 | | | $ | 9,757 | | | $ | 9,797 | | | $ | 9,736 | | | $ | 9,815 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of April 30, 2017 | | | | | | | | | | | | | | | | | | | | | | As of April 30, 2019 | | | | | | | | | | | | | | | | | | | | | | Investments in securities with fixed maturities | | $ | 7,479 | | | $ | 7,473 | | | $ | 7,504 | | | $ | 7,473 | | | $ | 7,500 | | | $ | 11,206 | | | $ | 11,476 | | | $ | 11,446 | | | $ | 11,493 | | | $ | 11,451 | |
Management regularly monitors the maturity structure of the Company’sCompany’s investments in debt securities in order to maintain an acceptable price risk associated with changes in interest rates. Equity Price Risk The carrying values of investments subject to equity price risks are based on quoted market prices as of the balance sheet dates. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the issuer, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold. The Company’s equity investment strategy has been to acquire equity securities across a diverse industry group. The portfolio consists primarily of ETFs and select common stock holdings of blue chip companies with a concentration on large capitalization companies with high relative dividend yields. In order to maintain liquidity in these securities, the Company’s policy has been to invest in and hold in its portfolio, no more than 5% of the approximate average daily trading volume in any one issue. Additionally, the Company may purchase and hold non-leveraged ETFs whose performance inversely corresponds to the market value changes of investments in other ETF securities held in the equity portfolio for dividend yield. As of JanuaryOctober 31, 20182019 and April 30, 2017,2019, the aggregate cost of the equity securities classified as available-for-sale, which consist of investments in the SPDR Series Trust S&P Dividend ETF (SDY), First Trust Value Line Dividend Index ETF (FVD), PowerSharesINVESCO Financial Preferred ETF (PGF), Select Utilities Select Sector SPDR ETF (XLU), First Trust Value Line 100 ETF (FVL) and Proshares, ProShares Trust S&P 500 Dividend Aristocrats ETF (NOBL) and iShares Select Dividend ETF (DVY) was $8,385,000$9,447,000 and $8,541,000, respectively, and the fair value was $9,926,000$11,932,000 and $9,097,000,$10,622,000, respectively. Equity Securities | | | | | | | | Estimated Fair Value after | | | Hypothetical Percentage | | | | | | | | | Hypothetical | | Hypothetical | | | Increase (Decrease) in | | ($ in thousands) | | | Fair Value | | Price Change | | Change in Prices | | | Shareholders’ Equity | | As of January 31, 2018 | Equity Securities and ETFs held for dividend yield | | $ | 9,926 | | 30% increase | | $ | 12,904 | | | | 4.39 | % | | | | | | | | 30% decrease | | $ | 6,948 | | | | -4.39 | % |
Equity Securities | | | | | | | | | | | Hypothetical Percentage | | | | | | | | | | | Estimated Fair | | | Increase | | | | | | | | | | | Value after | | | (Decrease) in | | | | | | | | Hypothetical | | Hypothetical | | | Shareholders’ | | ($ in thousands) | | | Fair Value | | Price Change | | Change in Prices | | | Equity | | As of October 31, 2019 | Equity Securities and ETFs held for dividend yield | | $ | 11,932 | | 30% increase | | $ | 15,512 | | | 5.49% | | | | | | | | | 30% decrease | | $ | 8,353 | | | -5.49% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Securities | | | | | | | | Estimated Fair Value after | | | Hypothetical Percentage | | | | | | | | | Hypothetical | | Hypothetical | | | Increase (Decrease) in | | ($ in thousands) | | | Fair Value | | Price Change | | Change in Prices | | | Shareholders’ Equity | | As of April 30, 2017 | Equity Securities and ETFs held for dividend yield | | $ | 9,097 | | 30% increase | | $ | 11,826 | | | | 4.69 | % | | | | | | | | 30% decrease | | $ | 6,368 | | | | -4.69 | % |
Equity Securities | | | | | | | | | | | Hypothetical | | | | | | | | | | | | | | Percentage | | | | | | | | | | | Estimated Fair | | | Increase | | | | | | | | | | | Value after | | | (Decrease) in | | | | | | | | | Hypothetical | | Hypothetical | | | Shareholders’ | | ($ in thousands) | | | Fair Value | | Price Change | | Change in Prices | | | Equity | | As of April 30, 2019 | Equity Securities and ETFs held for dividend yield | | $ | 10,622 | | 30% increase | | $ | 13,809 | | | 5.30% | | | | | | | | | 30% decrease | | $ | 7,436 | | | -5.30% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Item 4. CONTROLS AND PROCEDURES | | (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. |
The Company’s management has evaluated, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
| | | | | (b)
| The Company’s management has evaluated, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. | | | | | (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. |
Part II – OTHER INFORMATION Item 1. Legal Proceedings None. Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in Item 1A – Risk Factors in the Company’s Annual Report on Form 10-K for the year ended April 30, 20172019 filed with the SEC on July 26, 2017.25, 2019. Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| (c) | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Company
|
The following table provides information with respect to all repurchases of common stock made by or on behalf of the Company during the fiscal quarter ended JanuaryOctober 31, 2018.2019. All purchases listed below were made in the open market at prevailing market prices. | | | 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, 2017 | | | 2,285 | | | $ | 18 | | | | 2,285 | | | $ | 418,000 | | | | | | | | | | | | | | | | | | | | December 1 - 31, 2017 | | | - | | | | - | | | | - | | | | 418,000 | | | | | | | | | | | | | | | | | | | | January 1 - 31, 2018 | | | - | | | | - | | | | - | | | | 418,000 | | Total | | | 2,285 | | | $ | 18 | | | | 2,285 | | | $ | 418,000 | |
| | | 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 | | August 1 - 31, 2019 | | | 964 | | | $ | 24.93 | | | | 964 | | | $ | 1,322,000 | | September 1 - 30, 2019 | | | 1,879 | | | | 24.63 | | | | 1,879 | | | | 1,276,000 | | October 1 - 31, 2019 | | | 9,793 | | | | 23.51 | | | | 9,793 | | | | 1,045,000 | | Total | | | 12,636 | | | $ | 23.78 | | | | 12,636 | | | $ | 1,045,000 | |
All shares represent shareswere repurchased pursuant to authorization of the Board ofof Directors. On SeptemberOctober 19, 2012,2018, the Company’s Board of Directors authorized the repurchase of shares of the Company’s common stock, at such times and prices as management determined to be advisable, up to an aggregate purchase price of $3,000,000.$2,000,000. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information None. Item 6. Exhibits 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE | XBRL Instance Document XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document |
VALUE LINE, INC. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Value Line, Inc.
(Registrant)
| By:Value Line, Inc.
| /s/ Howard A. Brecher (Registrant) | | | | | | | | | | | By: | /s/ Howard A. Brecher | | | | Howard A. Brecher | | | | Chief Executive Officer | | | | | (Principal Executive Officer) | |
| | | | | | | | | By: | | | | | | | | | | | | By: | /s/ Stephen R. Anastasio | | | | Stephen R. Anastasio | | | | Vice President & Treasurer | | | | | (Principal Financial Officer) | |
Date: March 14, 2018December 13, 2019 3835
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