Note 16 - Paycheck Protection Program Loan:
The Company recently executed a note and received a loan (the "PPP Loan") from JP Morgan Chase Bank under the Paycheck Protection Program ("PPP") which was established under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and is administered by the U.S. Small Business Administration. In April 2020, the Company received the PPP Loan of $2,331,365. The proceeds from the PPP Loan were used in accordance with the terms of the CARES Act program, as described further below.
The term of the PPP Loan is two years. The interest rate on the PPP Loan is 1.00%, which shall be deferred for the first ten months of the term of the loan. Pursuant to the terms of the CARES Act, the proceeds of the PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs. The promissory note evidencing the PPP Loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under such PPP Loan, collection of all amounts owing from the respective Borrower, filing suit and obtaining judgment against the respective Borrower.
Under the terms of the CARES Act, Borrowers can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act, as described above, during a period not to exceed a twenty-four week period after loan origination and the maintenance or achievement of certain employee levels. No assurance is provided that a Borrower will obtain forgiveness under any relevant PPP Loan in whole or in part.
Item 2. MANAGEMENT’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; |
| | ● | protecting 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; |
| | ● | possible changes in the valuation of EAM’s intangible 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 and investment 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; |
| | ● | the coronavirus pandemic, which has drastically affected markets, employment, and other economic conditions, and may have additional unpredictable impacts on employees, suppliers, customers, and operations; |
| ● | other possible epidemics; |
| ● | 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 Factors” of the Company’s Annual Report on Form 10-K for the year ended April 30, 20192020 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the period ended October 31, 2019;2020; 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” 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 certain Value Line copyrights, Value Line trademarks and Value Line Proprietary Ranking System resultsRanks 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’s target audiences within the investment research field are individual investors, colleges, government entities including public libraries, and investment management professionals. Individuals come to Value Line for complete research in onea single package. Institutional licensees consist of corporations, financial professionals, colleges, government agencies, and municipal libraries. Libraries and universities offer the Company’s detailed research to their patrons and students. Investment management professionals and other institutional customers 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) andas well as the Value Line copyrights, and Value Line Proprietary Ranking System results, and other proprietary information, consolidate into one segment called Publishing.
Asset Management and Mutual Fund Distribution Businesses
The business of EAM is managed by its trustees each owning 20% of the voting profits interest in EAM and by its officers subject to the direction of the trustees. The Company’s non-voting revenues and non-voting profits interests in EAM entitle it to receive a range of 41% to 55% of EAM’s revenues (excluding distribution revenues) from EAM’s mutual fund and separate account business and 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances). The Voting Profits Interest Holders will receive the other 50% of residual profits of EAM. Distribution is not less than 90% of EAM’s profits payable each fiscal quarter under the provisions of the EAM Trust Agreement.
Business Environment
The long business expansion, appearswhich began following the serious and extended recession of 2008-2009, came to be securelya sudden and abrupt end during the first half of 2020, due largely to the deadly outbreak of COVID-19. That pandemic, which has shown no signs of abating, has led to more than 14 million infections and nearly 300,000 deaths across the United States.
The deadly disease, as noted, also would wreak havoc on our nation's economy, causing many businesses to close for a time, others to operate at low and unprofitable levels, and still more to shutter permanently due to social distancing mandates and the weakened finances of many consumers. The consequent recession resulted in place asmassive layoffs. The nation's gross domestic product, in response, contracted to a new year approaches. However,moderate degree during the acceleration in economic activity experienced in 2018, when the benefitsopening three months of the Administration's major tax cut were peaking, has run its course,now-ending year and growth has moved onto a somewhat slower track. This moderating trend was evidencedthen by an historic 31.4% in the second quarter. In trying to effectively respond to this crisis, the U.S. Government passed and implemented an historic fiscal stimulus program. Such implementation helped the nation's GDP to surge by a record-breaking 33.1% in the third quarters this year when growth slowed to 2.0% 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 next several quarters.
Behind much of this more deliberate pacequarter. However, as impressive as that performance was, it offset only about two-thirds of the business upturn isearly declines. Meantime, efforts to secure additional federal funding have thus far met with partisan stalemate. We think the first multi-month contractionmatter will be revisited in manufacturing activityearly 2021 when the Administration headed by President Elect Joseph R. Biden Jr. assumes office in several years. Much of this shortfall is a consequence ofWashington. On the trade impasse between the United States and 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 bymonetary side, the Federal Reserve (“Fed”),has cut the seeming diminutionfederal funds rate target to near zero, initiated a massive program of asset purchases, and noted that it would be flexible with regard to inflation targets, so as not to dampen efforts to turn the economy around on a long-term basis.
Not only did the long economic expansion grind to a halt earlier in trade tensions,2020, but so too did the historic bull market, which at its early year peak had seen the Dow Jones Industrial Average reach the doorstep of 30,000. Then, after the market's brief, but painful, reversal investors, emboldened by the actions taken by Washington and the continuationFed, and cheered by the initial reopening of strong profit growth alla majority of the country's businesses, quickly regained their stride. In fact, within weeks, the shortest bear market in history was over and a new bull market had begun. Since that turnaround, the S&P 500 Index, the NASDAQ and most recently the Dow Jones Industrial Average have contributedsoared to record highs, with the blue-chip index finally crossing the historic 30,000 level just before Thanksgiving.
Now, the challenge will be for the economy to respond in kind. To be sure, equity markets often lead changes in business direction by as much as six months. Therefore, it is entirely possible, even likely, that such activity will respond affirmatively to the stock market's further resilience.actions taken earlier by Washington and the Fed. However, challenges remain, not the least of which is the ramping up of COVID-19 cases, hospitalizations, and deaths in recent weeks. Fortunately, this upward spike in infections should prove comparatively short-lived, as effective vaccines are on the way with mass distributions expected to follow by the spring. In fact, the meantime, though, we likely continuation of this compelling combination should allow the equity market to at least hold its ownwill see a marked deceleration in GDP growth in the coming months.
current quarter, due to some anticipated lockdowns, and during the first three months of 2021.
Results of Operations for the Three and Six Months Ended October 31, 20192020 and October 31, 20182019
The following table illustrates the Company’s key components of revenues and expenses.
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | | | Three Months Ended October 31, | | | Six Months Ended October 31, | |
($ in thousands, except earnings per share) | | 2019 | | | 2018 | | | Change | | | 2019 | | | 2018 | | | Change | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | Change | |
Income from operations | | $ | 2,629 | | | $ | 1,760 | | | | 49.4 | % | | $ | 4,654 | | | $ | 3,030 | | | | 53.6 | % | | $ | 2,188 | | | $ | 2,629 | | | | -16.8 | % | | $ | 4,414 | | | $ | 4,654 | | | | -5.2 | % |
Non-voting revenues and non-voting profits interests from EAM Trust | | | 3,058 | | | | 2,384 | | | | 28.3 | % | | | 5,929 | | | | 4,655 | | | | 27.4 | % | | | 4,214 | | | | 3,058 | | | | 37.8 | % | | | 7,858 | | | | 5,929 | | | | 32.5 | % |
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 | % | | $ | 6,402 | | | $ | 5,687 | | | | 12.6 | % | | $ | 12,272 | | | $ | 10,583 | | | | 16.0 | % |
Operating expenses | | $ | 7,451 | | | $ | 7,291 | | | | 2.2 | % | | $ | 15,043 | | | $ | 14,992 | | | | 0.3 | % | | $ | 8,022 | | | $ | 7,451 | | | | 7.7 | % | | $ | 16,124 | | | $ | 15,043 | | | | 7.2 | % |
Income from securities transactions, net | | $ | 143 | | | $ | 123 | | | | 16.3 | % | | $ | 284 | | | $ | 237 | | | | 19.8 | % | | $ | 323 | | | $ | 143 | | | | 125.9 | % | | $ | 1,281 | | | $ | 284 | | | | 351.1 | % |
Income before income taxes | | $ | 5,830 | | | $ | 4,267 | | | | 36.6 | % | | $ | 10,867 | | | $ | 7,922 | | | | 37.2 | % | | $ | 6,725 | | | $ | 5,830 | | | | 15.4 | % | | $ | 13,553 | | | $ | 10,867 | | | | 24.7 | % |
Net income | | $ | 4,211 | | | $ | 3,302 | | | | 27.5 | % | | $ | 7,901 | | | $ | 6,406 | | | | 23.3 | % | | $ | 5,056 | | | $ | 4,211 | | | | 20.1 | % | | $ | 10,173 | | | $ | 7,901 | | | | 28.8 | % |
Earnings per share | | $ | 0.44 | | | $ | 0.34 | | | | 29.4 | % | | $ | 0.82 | | | $ | 0.66 | | | | 24.2 | % | | $ | 0.53 | | | $ | 0.44 | | | | 20.5 | % | | $ | 1.06 | | | $ | 0.82 | | | | 29.3 | % |
During the six months ended October 31, 2019,2020, the Company’s net income of $10,173,000, or $1.06 per share, was 28.8% above net income of $7,901,000, or $0.82 per share, for the six months ended October 31, 2019. During the six months ended October 31, 2020, the Company’s income from operations of $4,654,000$4,414,000 was 53.6% above5.2% below income from operations of $3,030,000$4,654,000 during the six months ended October 31, 2018.2019. During the six months ended October 31, 2019,2020, there were 9,658,7349,612,756 average common shares outstanding as compared to 9,689,3889,658,734 average common shares outstanding during the six months ended October 31, 2018. For the six months ended October 31, 2019, operating expenses were well controlled and were comparable to those during the six months ended October 31, 2018. During the six months ended October 31, 2019, 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 the six months ended October 31, 2018. 2019.
During the three months ended October 31, 2019,2020, the Company’s net income of $4,211,000,$5,056,000, or $0.44$0.53 per share, was 27.5%20.1% above net income of $3,302,000,$4,211,000, or $0.34$0.44 per share, for the three months ended October 31, 2018.2019. During the three months ended October 31, 2019,2020, the Company’s income from operations of $2,629,000$2,188,000 was 49.4% above16.8% below income from operations of $1,760,000$2,629,000 during the three months ended October 31, 2018.2019. The largest factors in the increases in net income and income from operations during the three and six months ended October 31, 2019,2020, compared to the prior fiscal year, were an increase in copyright fees, an increase from revenues and profits interests in EAM Trust, and well controlled overall expenses.an increase in realized capital gains on sales of securities available for sale.
Total operating revenues
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | | | Three Months Ended October 31, | | | Six Months Ended October 31, | |
($ in thousands) | | 2019 | | | 2018 | | | Change | | | 2019 | | | 2018 | | | Change | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | Change | |
Investment periodicals and related publications: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Print | | $ | 3,109 | | | $ | 3,379 | | | | -8.0 | % | | $ | 6,290 | | | $ | 6,772 | | | | -7.1 | % | | $ | 2,964 | | | $ | 3,109 | | | | -4.7 | % | | $ | 6,158 | | | $ | 6,290 | | | | -2.1 | % |
Digital | | | 3,840 | | | | 3,883 | | | | -1.1 | % | | | 7,692 | | | | 7,782 | | | | -1.2 | % | | | 3,937 | | | | 3,840 | | | | 2.5 | % | | | 7,835 | | | | 7,692 | | | | 1.9 | % |
Total investment periodicals and related publications | | | 6,949 | | | | 7,262 | | | | -4.3 | % | | | 13,982 | | | | 14,554 | | | | -3.9 | % | | | 6,901 | | | | 6,949 | | | | -0.7 | % | | | 13,993 | | | | 13,982 | | | | 0.1 | % |
Copyright fees | | | 3,131 | | | | 1,789 | | | | 75.0 | % | | | 5,715 | | | | 3,468 | | | | 64.8 | % | | | 3,309 | | | | 3,131 | | | | 5.7 | % | | | 6,545 | | | | 5,715 | | | | 14.5 | % |
Total publishing revenues | | $ | 10,080 | | | $ | 9,051 | | | | 11.4 | % | | $ | 19,697 | | | $ | 18,022 | | | | 9.3 | % | | $ | 10,210 | | | $ | 10,080 | | | | 1.3 | % | | $ | 20,538 | | | $ | 19,697 | | | | 4.3 | % |
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, | | |
| | | | 2019 | | | | 2018 | | | | 2019 | | | | 2018 | | | Three Months Ended October 31, | | | As of October 31, | |
| | | | | | | | | | | | | | | | | | | | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
| | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | | | Print | | | Digital | |
New Sales | | | 11.9 | % | | | 9.9 | % | | | 17.3 | % | | | 11.8 | % | | | 12.0 | % | | | 14.6 | % | | | 16.5 | % | | | 13.2 | % | | | 13.5 | % | | | 15.9 | % | | | 11.9 | % | | | 9.9 | % | | | 15.2 | % | | | 15.4 | % | | | 12.0 | % | | | 14.6 | % |
Conversion and Renewal Sales | | | 88.1 | % | | | 90.1 | % | | | 82.7 | % | | | 88.2 | % | | | 88.0 | % | | | 85.4 | % | | | 83.5 | % | | | 86.8 | % | |
Renewal Sales | | | | 86.5 | % | | | 84.1 | % | | | 88.1 | % | | | 90.1 | % | | | 84.8 | % | | | 84.6 | % | | | 88.0 | % | | | 85.4 | % |
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 six months ended October 31, 20192020 new sales of print and digital publications increased as a percent of the total gross print and digital sales versus the prior fiscal year due to an increase in new Telemarketing gross sales of print and digital publications. During the six months ended October 31, 2020 renewal sales of print and digital publications decreased as a percent of the total gross digital sales versus the prior fiscal year due to an increasea decrease in new Institutional gross sales of digital publications. During the six months ended October 31, 2019 new sales ofInstitutional print publications decreased as a percent of the total gross print sales versus the prior fiscal year duecustomer migration to the timing of advertising.digital services continues gradually.
| | | As of October 31, | | | As of April 30, | | | As of October 31, | | | Change | |
($ in thousands) | | 2019 | | | 2019 | | | 2018 | | | Oct-19 vs. Apr-19 | | | Oct-19 vs. Oct-18 | |
Unearned subscription revenue (current and long-term liabilities) | | $ | 22,749 | | | $ | 25,483 | | | $ | 23,201 | | | -10.7% | | | -1.9% | |
| | | As of
October 31, | | | As of
April 30, | | | As of
October 31, | | | Change | |
($ in thousands) | | 2020 | | | 2020 | | | 2019 | | | Oct-20 vs.
Apr-20 | | | Oct-20 vs.
Oct-19 | |
Unearned subscription revenue (current and long-term liabilities) | | $ | 22,789 | | | $ | 24,738 | | | $ | 22,749 | | | | -7.9 | % | | | 0.2 | % |
Unearned subscription revenue as of October 31, 20192020 is 1.9% belowslightly above October 31, 20182019 and is 10.7%7.9% below April 30, 2019. Variation2020. A certain amount of variation is to be expected due to the level and timing of advertising for order generation, 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 endThe institutional side felt the effects of the Company’s fiscal year).coronavirus recession and market volatility.
Investment periodicals and related publications revenues
Investment periodicals and related publications revenues of $13,982,000 decreased 3.9%$13,993,000 which included an extra week of servings for the weekly print products increased 0.1% (decreased 1.3% excluding the extra week of print products servings), during the six months ended October 31, 2019,2020, as compared to the prior fiscal year. The Company continued activity 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 October 31, 20192020 was 6.1% below1.4% above total product line circulation at October 31, 2018.2019, reversing a long term trend. During the six months ended October 31, 20192020, Institutional Sales department generated total sales orders of $5,742,000$6,270,000 or 9.2% above the prior fiscal year and the retail telemarketing sales team generated total sales orders of $3,581,000.$3,907,000 or 9.1% above the prior fiscal year.
Total print circulation at October 31, 2020 was 1.0% above the total print circulation at October 31, 2019. Print publication revenues of $6,290,000 decreased 7.1%$6,158,000 during the six months ended October 31, 20192020 decreased 2.1% (decreased 5.1% excluding the extra week of print products servings), as compared to the prior fiscal year as a result of a 7.1% decline in total print circulation in fiscal 2020.year. Total digital circulation at October 31, 20192020 was 4.6% below2.0% above total digital circulation at October 31, 20182019 and digital publications revenues of $7,692,000$7,835,000 during the six months ended October 31, 20192020 were 1.2% below1.9% above the prior fiscal year. The decreases are attributable in part to more selective advertising to generate entry-level new retail subscriptions.
Value Line serves primarily individual and professional investors in stocks, who pay generallymostly 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,independent, 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 duringthus far in 2020 were new features in the Value Line Research Center, such as The New Value Line ETFs Service. A new monthly publication Value Line Information You Should Know Wealth Newsletter was introduced in January 2020, and features of the Value Line Research Center and The Value Line Fund Advisor Plus services were enhanced. The new Value Line M & A Service, seeking stocks of quality companies that may be merged or acquired, launched in the second quarter was a new set of features in our Research Center, constitutes the new Value Line ETFs service. fiscal 2021.
The Value Line Proprietary Ranking System resultsRanks (the “Ranking System”), a component of the Company’s flagship product, The Value Line Investment Survey, isare also utilized in the Company’s copyright 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. During the six month period ended October 31, 2019,2020, the combined Ranking System “Rank 1 & 2” stocks’ increase of 3.2% outperformed11.3% compared to the Russell 2000 Index’s decreaseincrease of 1.8%17.4% during the comparable period. During the twelve month period ended October 31, 2019,2020, the combined Ranking System “Rank 1 & 2” stocks’ increasedecrease of 9.7% outperformed0.3% compared to the Russell 2000 Index’s increasedecrease of 3.4%1.5% during the comparable period.
Copyright fees
During the three and six months ended October 31, 2019,2020, copyright fees of $5,715,000$3,309,000 and $6,545,000, respectively, were 64.8%5.7% and 14.5% above those during the corresponding periodperiods in the prior fiscal year. The largest of the individual ETFs active under Value Line’s copyright program has again earned a five star overall Morningstar rating. The Company discussedhas negotiated with the sponsor of ourthe largest exchange traded fund (“ETF”) duringin the second quarter of fiscal 2020program the phased restructuring of the Company’s asset based fees and overall fees of the ETF in light of the competitive market. The Company’s copyright fees couldmay be reduced by approximately five toin the range of ten percent, during fiscal 2020, based onalthough the current level of assets under management in the ETF although notably such assets have continuedis critical to grow steadily.this projection, and it reached new highs in recent weeks subsequent to the second quarter ended October 31, 2020.
Investment management fees and services – (unconsolidated)
The Company has substantial non-voting revenues and non-voting profits interests in EAM, the asset manager to the Value Line Mutual Funds. 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.
Value Line Funds continue to succeed in assets growth by virtue of having positive cash flow for the past two years. Net assets in hybrid funds were up $1 billion at October 31, 2020. Total assets in the Value Line Funds managed and/or distributed by EAM at October 31, 2019,2020, were $3.50$4.46 billion, which is $930$965 million, or 36%27.6%, above total assets of $2.57$3.50 billion in the Value Line Funds managed and/or distributed by EAM at October 31, 2018.2019. The increase reflects successful investment selection capturing market appreciation and positive net flows for the Value Line Funds, partially offset by net redemptions in eight of the eleventen Funds over the twelve month period ended October 31, 2019.2020.
Shares of Value Line Strategic Asset Management Trust (“SAM”) and Value Line Centurion Fund (“Centurion”) are only distributed within certain variable annuity and variable life insurance contracts issued by The Guardian Insurance & Annuity Company, Inc. (“GIAC”).contracts.
Value Line Mutual Funds
| | | As of October 31, | | | As of October 31, | |
($ in millions) | | 2019 | | | 2018 | | | Change | | | 2020 | | | 2019 | | | Change | |
Variable annuity assets ("GIAC") | | $ | 405 | | | $ | 376 | | | | 7.7 | % | | $ | 397 | | | $ | 405 | | | | -2.0 | % |
All other open end equity and hybrid fund assets | | | 2,986 | | | | 2,091 | | | | 42.8 | % | | | 3,962 | | | | 2,986 | | | | 32.7 | % |
Total equity and hybrid funds | | | 3,391 | | | | 2,467 | | | | 37.5 | % | | | 4,359 | | | | 3,391 | | | | 28.5 | % |
Fixed income funds | | | 107 | | | | 107 | | | | 0 | % | | | 104 | | | | 107 | | | | -2.8 | % |
Total EAM managed net assets | | $ | 3,498 | | | $ | 2,574 | | | | 35.9 | % | | $ | 4,463 | | | $ | 3,498 | | | | 27.59 | % |
The Value Line Fund shareholders are provided a money market fund investment managed by Federated Government Obligations Fund. In July 2020, the Value Line VIP Equity Advantage Fund was closed and liquidated.
As of October 31, 2019 and October 31, 2018,2020, five of six Value Line equity and hybrid mutual funds, excluding SAM and Centurion, held an overall four or five star rating by Morningstar, Inc. This has been a major factor in net positive fund flows and EAM improving its market share.
Several of the Value Line Funds have received national recognition. The Value Line Asset Allocation Fund wasand Capital Appreciation Fund continue stellar performance as the top performing balanced fund in 2018funds of any allocation fundfunds in Morningstar’s allocation categories. The Value Line Mid-Cap Focused Fund, the Value Line Small Cap Opportunities Fund and the Value Line Capital Appreciation Fund have been named “Category Kings” in The Wall Street Journal (“Journal”) in multiple months in recent 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’s investment management operations during the six months ended October 31, 2020, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $13,491,000, 12b-1 fees and other fees of $4,755,000 and other income of $115,000. For the same period, total investment management fee waivers were $119,000 and 12b-1 fee waivers for six Value Line Funds were $322,000. During the six months ended October 31, 2020, EAM's net income was $1,698,000 after giving effect to Value Line’s non-voting revenues interest of $7,009,000, 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’s investment management operations during the six months ended October 31, 2019, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $10,610,000, 12b-1 fees and other fees of $4,065,000 and other income of $58,000. For the same period, total investment management fee waivers were $218,000 and 12b-1 fee waivers for six Value Line Funds were $339,000. During the six months ended October 31, 2019, EAM's net income was $1,146,000 after giving effect to Value Line’s non-voting revenues interest of $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’s investment management operations during the six months ended October 31, 2018, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $8,290,000, 12b-1 fees and other fees of $3,431,000 and other income of $44,000 which included dividend, interest and licensing fees income. For the same period, total investment management fee waivers were $221,000 and 12b-1 fee waivers for four Value Line Funds were $334,000. During the six months ended October 31, 2018, EAM's net income was $1,184,000 after giving effect to Value Line’s non-voting revenues interest of $4,063,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.
As of October 31, 2019,2020, three of the Value Line Funds have all or a portion of the 12b-1 fees being waived, and one fund has a partial investment management fee waiverwaivers in place. Although, under the terms of the EAM Declaration of Trust, the Company does not receiveno longer receives or shareshares in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets.
The Value Line equity and hybrid funds’ assets represent 85.4%88.8%, variable annuity funds issued by GIAC represent 11.6%8.9%, and fixed income fund assets represent 3.0%2.3%, respectively, of total fund assets under management (“AUM”) as of October 31, 2019.2020. At October 31, 2019,2020, equity, hybrid and GIAC variable annuities AUM increased by 37.5%28.5% and fixed income AUM were comparabledecreased by 2.8% as compared to fiscal 2019.2020.
EAM - The Company’s non-voting revenues and non-voting profits interests
The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business, and 50% of EAM’s net profits, not less than 90% of which is distributed in cash every fiscal quarter. The applicable recent non-voting revenues interest percentage for the second quarter of fiscal 20202021 was 50.71%52.06%.
The Company recorded income from its non-voting revenues interest and its non-voting profits interest in EAM as follows:
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | | | Three Months Ended October 31, | | | Six Months Ended October 31, | |
($ in thousands) | | 2019 | | | 2018 | | | Change | | | 2019 | | | 2018 | | | Change | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | Change | |
Non-voting revenues interest | | $ | 2,768 | | | $ | 2,095 | | | | 32.1 | % | | $ | 5,356 | | | $ | 4,063 | | | | 31.8 | % | | $ | 3,729 | | | $ | 2,768 | | | | 34.7 | % | | $ | 7,009 | | | $ | 5,356 | | | | 30.9 | % |
Non-voting profits interest | | | 290 | | | | 289 | | | | 0.3 | % | | | 573 | | | | 592 | | | | -3.2 | % | | | 485 | | | | 290 | | | | 67.2 | % | | | 849 | | | | 573 | | | | 48.2 | % |
| | | $ | 3,058 | | | $ | 2,384 | | | | 28.3 | % | | $ | 5,929 | | | $ | 4,655 | | | | 27.4 | % | | $ | 4,214 | | | $ | 3,058 | | | | 37.8 | % | | $ | 7,858 | | | $ | 5,929 | | | | 32.5 | % |
Operating expenses
| | | Three Months Ended October 31, | | | Six Months Ended October 31, | | | Three Months Ended October 31, | | | Six Months Ended October 31, | |
($ in thousands) | | 2019 | | | 2018 | | | Change | | | 2019 | | | 2018 | | | Change | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | Change | |
Advertising and promotion | | $ | 702 | | | $ | 642 | | | | 9.3 | % | | $ | 1,645 | | | $ | 1,562 | | | | 5.3 | % | | $ | 817 | | | $ | 702 | | | | 16.4 | % | | $ | 1,872 | | | $ | 1,645 | | | | 13.8 | % |
Salaries and employee benefits | | | 4,391 | | | | 4,268 | | | | 2.9 | % | | | 8,776 | | | | 8,747 | | | | 0.3 | % | | | 4,554 | | | | 4,391 | | | | 3.7 | % | | | 9,062 | | | | 8,776 | | | | 3.3 | % |
Production and distribution | | | 1,245 | | | | 1,268 | | | | -1.8 | % | | | 2,410 | | | | 2,583 | | | | -6.7 | % | | | 1,392 | | | | 1,245 | | | | 11.8 | % | | | 2,665 | | | | 2,410 | | | | 10.6 | % |
Office and administration | | | 1,113 | | | | 1,113 | | | | 0.0 | % | | | 2,212 | | | | 2,100 | | | | 5.3 | % | | | 1,259 | | | | 1,113 | | | | 13.1 | % | | | 2,525 | | | | 2,212 | | | | 14.2 | % |
Total expenses | | $ | 7,451 | | | $ | 7,291 | | | | 2.2 | % | | $ | 15,043 | | | $ | 14,992 | | | | 0.3 | % | | $ | 8,022 | | | $ | 7,451 | | | | 7.7 | % | | $ | 16,124 | | | $ | 15,043 | | | | 7.2 | % |
Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, office and administration.
Operating expenses of $15,043,000 during the six months ended October 31, 2019 were comparable to those during the six months ended October 31, 2018. Production and distribution expense categories decreased 6.7% as a result of cost controls and a decline in amortization of internally developed software during the six months ended October 31, 2019. Operating expenses of $7,451,000 during the three months ended October 31, 2019 were 2.2% above those during the three months ended October 31, 2018 primarily due to an increase in advertising and promotion expenses during the second quarter of fiscal 2020.
Advertising and promotion
During the three and six months ended October 31, 2019,2020, advertising and promotion expenses of $702,000$817,000 and $1,645,000,$1,872,000, respectively, increased 9.3%16.4% and 5.3%13.8% as compared to the prior fiscal year. During the six months ended October 31, 2019, an2020, increases were primarily due to a $123,000 increase in media marketing expenses and institutional sales promotion was partially offset byand a 9.5% decrease$79,000 increase in direct mail expenses primarily for The Value Line Investment Surveyand a 3.1% decrease in sales commissions as compared to fiscal 2019.The Value Line 600.
Salaries and employee benefits
During the three and six months ended October 31, 2019,2020, salaries and employee benefits of $4,391,000$4,554,000 and $8,776,000,$9,062,000, respectively, increased 2.9%3.7% and 0.3%3.3% above the prior fiscal year. InThe increase during the six months ended October 31, 2020, was primarily due to increases in Profit Sharing employee retirement benefits during fiscal 20202021 and employee recruitment fees partially offset by a 7.2% decrease in salaries and employee benefits in the Information Technology department (“IT”) decreased 3.9%, reflecting completion of certain initiatives to upgrade operating systems. Additional pay associated with the coronavirus pandemic was no longer material in the second quarter of fiscal 2021.
Production and distribution
During the three and six months ended October 31, 2019,2020, production and distribution expenses of $1,245,000$1,392,000 and $2,410,000,$2,665,000, respectively, decreased 1.8%increased 11.8% and 6.7% below10.6% above the prior fiscal year. DuringThe increase of $251,000 during the six months ended October 31, 2019, a $72,000 decrease2020, was attributable to costs 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 $48,000 was attributable to a decline in amortization of internally developed software costs related to digital security and publication production software as compared to fiscal 2019. In fiscal 2020 printing and distribution costs decreased $38,000 due to a 7.1% decrease in print circulation during2020. During the six months ended October 31, 2019.2020, production and distribution expenses increased due to an extra week of servings for the weekly print products in fiscal 2021.
Office and administration
During the three and six months ended October 31, 2019,2020, office and administrative expenses of $1,113,000$1,259,000 and $2,212,000,$2,525,000, respectively, increased 0%13.1% and 5.3%14.2% above the prior fiscal year. The increase of $117,000 during the six months ended October 31, 20192020 was primarily a result of operating lease amortization expensean increase in professional fees and bank service costs based on higher credit card gross receipts of $5.8 million in fiscal 2020 due to a change2021 which were 26% higher than credit card gross receipts of $4.5 million in lease accounting standard ASU 2016-02,"Leases (Topic 842)".the prior fiscal year.
Concentration
During the six months ended October 31, 2019, 29.0%2020, 31.9% of total publishing revenues of $19,697,000$20,538,000 were derived from a single customer.
Income from Securities Transactions, net
During the six months ended October 31, 20192020 and October 31, 2018,2019, the Company’s income from securities transactions, net, primarily derived from dividend and interest income, was $284,000$1,281,000 and $237,000,$284,000, respectively. Proceeds from maturities and sales of government debt securities classified as available-for-sale during the six months ended October 31, 20192020 and October 31, 2018,2019, were $5,214,000 and $4,974,000, and $4,638,000, respectively. Proceeds from sales of equity securities classified as available-for-sale during the six months ended October 31, 2020 were $5,529,000. Gains on the sales of equity securities classified as available-for-sale were reclassified from other comprehensive income in the Consolidated Condensed Balance Sheet in the amount of $925,000 during the six months ended October 31, 2020. There were no sales or proceeds from sales of equity securities during the six months ended October 31, 2019 or October 31, 2018.2019.
Effective income tax rate
The overall effective income tax rates, as a percentage of pre-tax ordinary income for the six months ended October 31, 20192020 and October 31, 20182019 were 27.29%24.93% and 19.14%27.29%, respectively. The increasedecrease in the effective tax rate during the quarter ended October 31, 20192020 is primarily a result of an increasea decrease in the state and local income taxes as a result of changes in state and local tax legislation and the effect from lowering the New York City tax allocation factor on deferred taxesfactors in fiscal 2019.2021. The Company's annualized overall effective tax rate fluctuates due to a number of factors, in addition to changes 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 $8,258,000$18,000,000 as of October 31, 20192020 and $6,014,000$13,700,000 as of April 30, 2019.2020. These amounts include short-term unearned revenue of $18,040,000$16,847,000 and $20,008,000$18,854,000 reflected in total current liabilities at October 31, 20192020 and April 30, 2019,2020, respectively. Cash and short-term securities were $26,321,000$38,174,000 and $28,321,000$34,158,000 as of October 31, 20192020 and April 30, 2019,2020, respectively.
The Company’s cash and cash equivalents include $3,955,000$7,983,000 and $5,617,000$2,115,000 at October 31, 20192020 and April 30, 2019,2020, 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 Act and invest primarily in short-term U.S. government securities.
Cash from operating activities
The Company had cash inflows from operating activities of $7,668,000 during the six months ended October 31, 2020 compared to cash inflows from operating activities of $1,802,000 during the six months ended October 31, 2019 compared to cash inflows from operating activities of $3,416,000 during the six months ended October 31, 2018.2019. The decreaseincrease in cash inflows from fiscal 20192020 to fiscal 20202021 is primarily attributable to timing of the receipt of copyright fees as compared to the prior fiscal year and a declinethe increase in unearned revenues from subscriber prepaid orders for publications.net income during the six months ended October 31, 2020.
Cash from investing activities
The Company’s cash inflows from investing activities of $594,000$508,000 during the six months ended October 31, 20192020 compared to cash outflowsinflows from investing activities of $1,044,000$594,000 for the six months ended October 31, 2018.2019. Cash inflows for the six months ended October 31, 20192020 were higherlower than in fiscal 20192020 primarily due to a decline in purchases of fixed income securities partially offset by the additional equity securities investments in fiscal 2020.2021.
Cash from financing activities
During the six months ended October 31, 2019,2020, the Company’s cash outflows from financing activities were $4,258,000$4,441,000 and compared to cash outflows from financing activities of $3,728,000$4,258,000 for the six months ended October 31, 2018. Cash2019. During the six months ended October 31, 2020 cash outflows for financing activities included $393,000 and $46,000$422,000 for the repurchase of 16,493 shares and 2,28615,670 shares of the Company’s common stock under the October 19, 2018 and the September 19, 2012April 17, 2020 board approved common stock repurchase programs,program. Quarterly dividend payments of $0.21 per share during fiscal years 20202021 aggregated $4,039,000 and 2019, respectively. Quarterlycompared to quarterly dividend payments of $0.20 per share during fiscal 2020 aggregated $3,865,000 and compared to quarterly dividend payments of $0.19 per share during fiscal 2019 which aggregated $3,682,000.$3,865,000.
At October 31, 20192020 there were 9,647,0689,601,051 common shares outstanding as compared to 9,689,3349,647,068 common shares outstanding at October 31, 2018.2019. The Company expects financing activities to continue to include use of cash payments for dividendsdividend payments for the foreseeable future.
Management believes that the Company’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 October 31, 2019,2020, and April 30, 2019,2020, retained earnings were $52,636,000$62,587,000 and $48,598,000,$56,450,000, respectively, and liquid assets were $26,321,000$38,174,000 and $28,321,000,$34,158,000, respectively.
Seasonality
Our publishing revenues are comprised of subscriptions which are generally annual 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 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 Company adopted this ASU in May 2019 under a modified retrospective 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 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 Company has adopted ASU 2016-15 in the first quarter of fiscal 2019.
The 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 has adopted ASU No. 2014-09 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.
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 applicablehas integrated the effects of the various state laws.laws into its operations and continues to do so.
Critical Accounting Estimates and Policies
The Company prepares its Consolidated Condensed Financial Statementsfinancial statements in accordance with Generally 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’s Consolidated Condensed Balance Sheet includes a substantial amount of assets the 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’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 securities issued by federal, state and local governments within the United States. As of October 31, 20192020 and April 30, 20192020 the aggregate cost of fixed income securities classified as available-for-sale were $9,661,000$12,185,000 and $11,163,000,$14,902,000, respectively, and fair value was $9,758,000$12,300,000 and $11,206,000,$15,079,000, 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 (in thousands) | | | Estimated Fair Value after | |
| | | | | | | | | | | | | | | | | | | | | | | Hypothetical Change in Interest Rates | |
| | | (bp = basis points) | | | (in thousands) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 6 mos. | | | 6 mos. | | | 1 yr. | | | 1 yr. | | | (bp = basis points) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair | | | 50bp | | | 50bp | | | 100bp | | | 100bp | | | | | | | 1 yr. | | | 1 yr. | | | 1 yr. | | | 1 yr. | |
| | | Value | | | increase | | | decrease | | | increase | | | decrease | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Fair
Value | | | 50bp
Increase | | | 50bp
Increase | | | 100bp
Increase | | | 100bp
Increase | |
| | | | | | | | | | | | | | | | | | | | | | |
As of October 31, 2019 | | | | | | | | | | | | | | | | | | | | | |
| As of October 31, 2020 | | | | | | | | | | | | | | | | | | | | | |
Investments in securities with fixed maturities | | $ | 9,758 | | | $ | 9,757 | | | $ | 9,797 | | | $ | 9,736 | | | $ | 9,815 | | | $ | 12,300 | | | $ | 12,279 | | | $ | 12,346 | | | $ | 12,245 | | | $ | 12,380 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of April 30, 2019 | | | | | | | | | | | | | | | | | | | | | |
| As of April 30, 2020 | | | | | | | | | | | | | | | | | | | | | |
Investments in securities with fixed maturities | | $ | 11,206 | | | $ | 11,476 | | | $ | 11,446 | | | $ | 11,493 | | | $ | 11,451 | | | $ | 15,079 | | | $ | 15,058 | | | $ | 15,179 | | | $ | 14,998 | | | $ | 15,240 | |
Management regularly monitors the maturity structure of the Company’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 October 31, 20192020 and April 30, 2019,2020, 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), INVESCOInvesco Financial Preferred ETF (PGF), Select Utilities Select Sector SPDR ETF (XLU), First Trust Value Line 100 ETF (FVL), ProShares Trust S&P 500 Dividend Aristocrats ETF (NOBL) and, SPDR S&P 500 ETF (SPY), iShares Select Dividend ETF (DVY), ProShares Short S&P 500 New ETF (SH), and iShares Trust Ishares Preferred & Income Secs ETF (PFF) and First Trust Exchange-Traded Fund III PFD Secs & Income ETF (FPE) was $9,447,000$15,909,000 and $8,541,000,$12,877,000, respectively, and the fair value was $11,932,000$17,185,000 and $10,622,000,$14,125,000, respectively.
Equity Securities
| | | | | | | | | | | Hypothetical Percentage | | |
| | | | | | | | Estimated Fair | | Increase | | |
| | | | | | | | | Value after | | | (Decrease) in | | | | | | | | | | | | Hypothetical
Percentage | |
| | | | | | Hypothetical | | Hypothetical | | Shareholders’ | | | | | | | | | Estimated Fair Value after | | | Increase
(Decrease) in | |
($ in thousands) | | | Fair Value | | Price Change | | Change in Prices | | | Equity | | | | Fair Value | | Hypothetical Price Change | | Hypothetical Change in Prices | | | Shareholders’
Equity | |
As of October 31, 2019 | Equity Securities and ETFs held for dividend yield | | $ | 11,932 | | 30% increase | | $ | 15,512 | | | 5.49% | | |
As of October 31, 2020 | | Equity Securities and ETFs held for dividend yield | | $ | 17,185 | | 30% increase | | $ | 22,341 | | | | 6.44 | % |
| | | | | | | 30% decrease | | $ | 8,353 | | | -5.49% | | | | | | | 30% decrease | | $ | 12,030 | | | | -6.44 | % |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Equity Securities
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% | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | Hypothetical
Percentage | |
| | | | | | | | | Estimated Fair Value after | | | Increase (Decrease) in | |
($ in thousands) | | | Fair Value | | Hypothetical Price Change | | Hypothetical Change in Prices | | | Shareholders’
Equity | |
As of April 30, 2020 | Equity Securities and ETFs held for dividend yield | | $ | 14,125 | | 30% increase | | $ | 18,363 | | | | 6.25 | % |
| | | | | | | 30% decrease | | $ | 9,888 | | | | -6.25 | % |
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) | |
| (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, 20192020 filed with the SEC on July 25, 2019.28, 2020.
Item 2.
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
| | (c)(a)
| 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 October 31, 2019.2020. 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 | |
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 | |
| | | 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, 2020 | | | 7,309 | | | $ | 26.62 | | | | 7,309 | | | $ | 1,805,000 | |
September 1 - 30, 2020 | | | 774 | | | | 24.99 | | | | 774 | | | | 1,786,000 | |
October 1 - 31, 2020 | | | 7,587 | | | | 27.50 | | | | 7,587 | | | | 1,578,000 | |
Total | | | 15,670 | | | $ | 26.96 | | | | 15,670 | | | $ | 1,578,000 | |
All shares were repurchased pursuant to authorization of the Board of Directors.
On October 19, 2018,April 17, 2020, the Company’sCompany's Board of Directors authorizedapproved a share repurchase program authorizing 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 $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.
Item 4. Mine Safety Disclosures.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 |
| |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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)
| |
| (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: December 13, 201911, 2020
35
