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;
|
|
●
|
protection of intellectual property rights;
|
|
●
|
dependence on non-voting revenues and non-voting profits interests in EULAV Asset Management, a Delaware statutory trust (“EAM” or “EAM Trust”), which serves as the investment advisor to the Value Line Funds and engages in related distribution, marketing and administrative services;
|
|
●
|
fluctuations in EAM’s assets under management due to broadly based changes in the values of equity and debt securities, redemptions by investors and other factors, and the effect these changes may have on the valuation of EAM’s intangible assets;
|
|
●
|
generating future revenues or collection of receivables from significant customers;
|
|
●
|
dependence on key personnel;
|
|
●
|
competition in the fields of publishing, copyright and investment management;
|
|
●
|
the impact of government regulation on the Company’s and EAM’s businesses;
|
|
●
|
availability of free or low cost investment data through discount brokers or generally over the internet;
|
|
●
|
terrorist attacks, cyber attacks and natural disasters;
|
|
●
|
other risks and uncertainties, including but not limited to the risks described in Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended April 30, 2018 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the period ended October 31, 2018; 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 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’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 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.
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 economic upturn, long an understated affair, really took off during the spring and summer of this year, with impressive back-to-back increases in the nation's gross domestic product of 4.2% and 3.5%, respectively. This strength, meantime, continued to a greater degree than not during the fall. As to this impressive breakout, it largely has been fueled by healthy contributions from consumer spending, private inventory investment, nonresidential fixed investment, and increased federal, state, and local government spending. The advance has been held in check by a deceleration in export activity and a decline in residential fixed investment, as housing has been under some pressure due to rising mortgage rates.
Our sense, meanwhile, is that this midyear strength in the economy is likely to mark the high point for this venerable business expansion. However, any moderation in growth down the home stretch this year and in 2019 probably will be measured, initially, with such strong underlying fundamentals as healthy consumer confidence, steady job growth, and durable levels of business and consumer activity combining to keep growth in the area of 2.5%-3.0% this quarter and modestly under that relatively healthy level during the upcoming calendar year.
Moreover, this recent buildup in momentum should be largely sustained through decade's end. Of course, few expansions go on without interruption, and this one figures to be no exception. So, although we do not see a recession evolving for another year or two, at least, given the absence of excesses on the demand or inflation fronts, there are risks to our forecast that should not be overlooked. Key among these would be the failure of needed fiscal initiatives to be passed by a House and Senate that are now in divided hands, or the inability of the Federal Reserve to successfully navigate potentially choppy waters with deft monetary adjustments. Globally, the risks would include the failure to hammer a trade deal, or at least a truce, with China or the unfolding of a more extensive business slowdown in Europe or Asia than we now envision.
Results of Operations for the Three and Six Months Ended October 31, 2018 and October 31, 2017
The following table illustrates the Company’s key components of revenues and expenses.
|
|
Three Months Ended October 31,
|
|
|
Six Months Ended October 31,
|
|
($ in thousands, except earnings per share)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
1,760
|
|
|
$
|
808
|
|
|
|
117.8
|
%
|
|
$
|
3,030
|
|
|
$
|
1,973
|
|
|
|
53.6
|
%
|
Non-voting revenues and non-voting profits interests from EAM Trust
|
|
|
2,384
|
|
|
|
2,237
|
|
|
|
6.6
|
%
|
|
|
4,655
|
|
|
|
4,373
|
|
|
|
6.4
|
%
|
Income from operations plus non-voting revenues and non-voting profits interests from EAM Trust
|
|
$
|
4,144
|
|
|
$
|
3,045
|
|
|
|
36.1
|
%
|
|
$
|
7,685
|
|
|
$
|
6,346
|
|
|
|
21.1
|
%
|
Operating expenses
|
|
$
|
7,291
|
|
|
$
|
8,181
|
|
|
|
-10.9
|
%
|
|
$
|
14,992
|
|
|
$
|
15,930
|
|
|
|
-5.9
|
%
|
Income from securities transactions, net
|
|
$
|
123
|
|
|
$
|
91
|
|
|
|
35.2
|
%
|
|
$
|
237
|
|
|
$
|
187
|
|
|
|
26.7
|
%
|
Income before income taxes
|
|
$
|
4,267
|
|
|
$
|
3,136
|
|
|
|
36.1
|
%
|
|
$
|
7,922
|
|
|
$
|
6,533
|
|
|
|
21.3
|
%
|
Net income
|
|
$
|
3,302
|
|
|
$
|
2,072
|
|
|
|
59.4
|
%
|
|
$
|
6,406
|
|
|
$
|
4,287
|
|
|
|
49.4
|
%
|
Earnings per share
|
|
$
|
0.34
|
|
|
$
|
0.21
|
|
|
|
61.9
|
%
|
|
$
|
0.66
|
|
|
$
|
0.44
|
|
|
|
50.0
|
%
|
During the six months ended October 31, 2018, the Company’s net income of $6,406,000, or $0.66 per share, was $2,119,000 or 49.4% above net income of $4,287,000, or $0.44 per share, for the six months ended October 31, 2017. The largest factor in the increase was the January 1, 2018 reduction in the U.S. statutory federal corporate income tax rate from 35% to 21%. Income from operations of $3,030,000 during the six months ended October 31, 2018 was 53.6% above income from operations of $1,973,000 in the corresponding period of fiscal 2018. During the six months ended October 31, 2018 there were 9,689,388 average common shares outstanding as compared to 9,707,583 average common shares outstanding during the six months ended October 31, 2017. During the three months ended October 31, 2018, the Company’s net income of $3,302,000, or $0.34 per share, was $1,230,000 or 59.4% above net income of $2,072,000, or $0.21 per share, for the three months ended October 31, 2017. Income from operations of $1,760,000 during the three months ended October 31, 2018 was 117.8% above income from operations of $808,000 during the second quarter of fiscal 2018. During the three and six months ended October 31, 2018 operating expenses were kept under control and decreased $890,000 and $938,000, respectively, below those during the three and six months ended October 31, 2017.
Total operating revenues
|
|
Three Months Ended October 31,
|
|
|
Six Months Ended October 31,
|
|
($ in thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
Investment periodicals and related publications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print
|
|
$
|
3,379
|
|
|
$
|
3,466
|
|
|
|
-2.5
|
%
|
|
$
|
6,772
|
|
|
$
|
6,926
|
|
|
|
-2.2
|
%
|
Digital
|
|
|
3,883
|
|
|
|
3,960
|
|
|
|
-1.9
|
%
|
|
|
7,782
|
|
|
|
7,940
|
|
|
|
-2.0
|
%
|
Total investment periodicals and related publications
|
|
|
7,262
|
|
|
|
7,426
|
|
|
|
-2.2
|
%
|
|
|
14,554
|
|
|
|
14,866
|
|
|
|
-2.1
|
%
|
Copyright fees
|
|
|
1,789
|
|
|
|
1,563
|
|
|
|
14.5
|
%
|
|
|
3,468
|
|
|
|
3,037
|
|
|
|
14.2
|
%
|
Total publishing revenues
|
|
$
|
9,051
|
|
|
$
|
8,989
|
|
|
|
0.7
|
%
|
|
$
|
18,022
|
|
|
$
|
17,903
|
|
|
|
0.7
|
%
|
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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
Print
|
|
|
Digital
|
|
|
Print
|
|
|
Digital
|
|
|
Print
|
|
|
Digital
|
|
|
Print
|
|
|
Digital
|
|
New Sales
|
|
|
17.3
|
%
|
|
|
11.8
|
%
|
|
|
17.1
|
%
|
|
|
15.5
|
%
|
|
|
16.5
|
%
|
|
|
13.2
|
%
|
|
|
16.6
|
%
|
|
|
15.7
|
%
|
Conversion and Renewal Sales
|
|
|
82.7
|
%
|
|
|
88.2
|
%
|
|
|
82.9
|
%
|
|
|
84.5
|
%
|
|
|
83.5
|
%
|
|
|
86.8
|
%
|
|
|
83.4
|
%
|
|
|
84.3
|
%
|
Total Gross Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
During the six months ended October 31, 2018 sales of print publications as a percent of the total gross print sales were comparable to the prior fiscal year. During the six months ended October 31, 2018 new sales of digital publications decreased as a percent of the total gross digital sales as a result of a decrease in new sales orders. Conversion and renewal sales of digital services increased as a percent of the total gross digital sales over the prior fiscal year due to efforts by our in-house Retail and Institutional Sales departments.
|
|
As of October 31,
|
|
|
As of April 30,
|
|
|
As of October 31,
|
|
|
Change
|
|
($ in thousands)
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
|
Oct-18 vs.
Apr-18
|
|
|
Oct-18 vs.
Oct-17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned subscription revenue (current and long term liabilities)
|
|
$
|
23,201
|
|
|
$
|
25,525
|
|
|
$
|
23,711
|
|
|
-9.1%
|
|
|
-2.2%
|
|
Unearned subscription revenue as of October 31, 2018 is 2.2% below October 31, 2017 and is 9.1% below April 30, 2018. The decline from April 30, 2018, reflects both the timing of advertising for order generation and the fact that April 30
th
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.
Investment periodicals and related publications revenues
Investment periodicals and related publications revenues of $14,554,000 decreased 2.1%, during the six months ended October 31, 2018, 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, 2018 was less than 1% below total product line circulation at October 31, 2017. The Company has been successful in growing revenues from investment periodicals within the institutional market.
Total print circulation at October 31, 2018 was 1.5% above total print circulation at October 31, 2017. Print publication revenues of $6,772,000 decreased 2.2% during the six months ended October 31, 2018 as compared to the prior fiscal year. Total digital circulation at October 31, 2018 was 3.7% below total digital circulation at October 31, 2017. However, digital publications revenues of $7,782,000 during the six months ended October 31, 2018 were only 2.0% below the prior fiscal year, as higher-priced subscriptions were generally retained.
The Value Line proprietary Ranking System results (the “Ranking System”), a component of the Company’s flagship product,
The Value Line Investment Survey
, is 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. For the six month period ended October 31, 2018, the combined Ranking System “Rank 1 & 2” stocks’ decrease of 3.1% compared to the Russell 2000 index’s decrease of 2.0% during the comparable period. For the twelve month period ended October 31, 2018, the combined Ranking System “Rank 1 & 2” stocks’ decrease of 2.7% underperformed the Russell 2000 index’s increase of 0.6% during the comparable period.
Value Line serves primarily individual and professional investors in stocks, who pay, primarily 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 a period of intensive promotion of “starter” services and publications.
Copyright fees
During the three and six months ended October 31, 2018, copyright fees of $1,789,000 and $3,468,000 were 14.5% and 14.2%, respectively, above those during the corresponding periods in the prior fiscal year. At October 31, 2018, total third party sponsored assets were $4.5 billion, as compared to $4.2 billion in assets at October 31, 2017. The largest of the individual ETFs active under Value Line’s copyright program has again earned a five star Morningstar rating for five and ten year periods.
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. Accordingly, 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 October 31, 2018, were $2.57 billion, which is $60 million, or 2.4%, above total assets of $2.51 billion in the Value Line Funds managed and/or distributed by EAM at October 31, 2017. The increase reflects successful investment selection capturing market appreciation, offset by net redemptions in eight of the eleven Value Line Funds over the twelve month period ended October 31, 2018.
Shares of Value Line Strategic Asset Management Trust (“SAM”) and Value Line Centurion Fund (“Centurion”) are within certain variable annuity and variable life insurance contracts issued by The Guardian Insurance & Annuity Company, Inc. (“GIAC”); new contracts of this type are no longer sold.
Value Line Mutual Funds
|
|
As of October 31,
|
|
($ in millions)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
Variable annuity assets ("GIAC")
|
|
$
|
377
|
|
|
$
|
407
|
|
|
|
-7.4
|
%
|
All other open end equity and hybrid fund assets
|
|
|
2,090
|
|
|
|
1,983
|
|
|
|
5.4
|
%
|
Total equity and hybrid funds
|
|
|
2,467
|
|
|
|
2,390
|
|
|
|
3.2
|
%
|
Fixed income funds
|
|
|
107
|
|
|
|
120
|
|
|
|
-10.8
|
%
|
Total EAM managed net assets
|
|
$
|
2,574
|
|
|
$
|
2,510
|
|
|
|
2.5
|
%
|
The Value Line Fund shareholders are provided a money market fund investment managed by Federated Government Obligations Fund.
As of October 31, 2018, 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.
Several of the Value Line Funds have received national recognition. 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
in multiple months in calendar 2017 and 2018
.
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, 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.
The overall results of EAM’s investment management operations during the six months ended October 31, 2017, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $8,026,000, 12b-1 fees and other fees of $3,168,000 and other income of $104,000 which included dividend, interest and licensing fees income. For the same period, total investment management fee waivers were $261,000 and 12b-1 fee waivers for four Value Line Funds were $414,000. During the six months ended October 31, 2017, EAM's net income was $712,000 after giving effect to Value Line’s non-voting revenues interest of $4,017,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.
As of October 31, 2018, three of the Value Line Funds have all or a portion of the 12b-1 fees being waived, and two funds have investment management fee waivers in place. Although, under the terms of the EAM Declaration of Trust, the Company no longer receives or shares in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets.
The Value Line equity and hybrid funds assets represent 81.2%, variable annuity funds issued by GIAC represent 14.6%, and fixed income fund assets represent 4.2%, respectively, of total fund assets under management (“AUM”) as of October 31, 2018. At October 31, 2018, equity, hybrid and GIAC variable annuities AUM increased by 3.2% and fixed income AUM decreased by 10.8% as compared to the prior fiscal year.
EAM - The Company’s non-voting revenues and non-voting profits interests
The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business, and 50% of EAM’s net profits, not less than 90% of which is distributed in cash every fiscal quarter. The applicable recent non-voting revenues interest percentage for the second quarter of fiscal 2019 was 50.33%.
The Company recorded income from its non-voting revenues interest and its non-voting profits interest in EAM as follows:
|
|
Three Months Ended October 31,
|
|
|
Six Months Ended October 31,
|
|
($ in thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
Non-voting revenues interest
|
|
$
|
2,095
|
|
|
$
|
2,039
|
|
|
|
2.7
|
%
|
|
$
|
4,063
|
|
|
$
|
4,017
|
|
|
|
1.1
|
%
|
Non-voting profits interest
|
|
|
289
|
|
|
|
198
|
|
|
|
46.0
|
%
|
|
|
592
|
|
|
|
356
|
|
|
|
66.3
|
%
|
|
|
$
|
2,384
|
|
|
$
|
2,237
|
|
|
|
6.6
|
%
|
|
$
|
4,655
|
|
|
$
|
4,373
|
|
|
|
6.4
|
%
|
Operating expenses
|
|
Three Months Ended October 31,
|
|
|
Six Months Ended October 31,
|
|
($ in thousands)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
Advertising and promotion
|
|
$
|
642
|
|
|
$
|
827
|
|
|
|
-22.4
|
%
|
|
$
|
1,562
|
|
|
$
|
1,622
|
|
|
|
-3.7
|
%
|
Salaries and employee benefits
|
|
|
4,268
|
|
|
|
4,574
|
|
|
|
-6.7
|
%
|
|
|
8,747
|
|
|
|
9,074
|
|
|
|
-3.6
|
%
|
Production and distribution
|
|
|
1,268
|
|
|
|
1,403
|
|
|
|
-9.6
|
%
|
|
|
2,583
|
|
|
|
2,798
|
|
|
|
-7.7
|
%
|
Office and administration
|
|
|
1,113
|
|
|
|
1,377
|
|
|
|
-19.2
|
%
|
|
|
2,100
|
|
|
|
2,436
|
|
|
|
-13.8
|
%
|
Total expenses
|
|
$
|
7,291
|
|
|
$
|
8,181
|
|
|
|
-10.9
|
%
|
|
$
|
14,992
|
|
|
$
|
15,930
|
|
|
|
-5.9
|
%
|
Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, office and administration.
Operating expenses of $7,291,000 and $14,992,000, respectively, during the three and six months ended October 31, 2018 were 10.9% and 5.9%, respectively, below those during the three and six months ended October 31, 2017. The major decreases were in advertising expenses, salaries and employee benefits, professional fees and amortization of internally developed software during the three and six months ended October 31, 2018.
Advertising and promotion
During the three and six months ended October 31, 2018, advertising and promotion expenses of $642,000 and $1,562,000, respectively, decreased 22.4% and 3.7%, respectively, as compared to the prior fiscal year. During the six months ended October 31, 2018 a decrease in direct mail expenses was partially offset by an increase in media marketing expenses and institutional sales promotion.
Salaries and employee benefits
During the three and six months ended October 31, 2018 salaries and employee benefits of $4,268,000 and $8,747,000, respectively decreased 6.7% and 3.6%, respectively, below the prior fiscal year primarily due to decreases in salaries and employee benefits in the Information Technology department (“IT”).
Production and distribution
During the three and six months ended October 31, 2018 production and distribution expenses of $1,268,000 and $2,583,000, respectively, decreased 9.6% and 7.7%, respectively, below the prior fiscal year. During the six months ended October 31, 2018 a decrease of $246,000 was attributable to a decline in amortization of internally developed software costs related to digital security and publication production software.
Office and administration
During the three and six months ended October 31, 2018 office and administrative expenses of $1,113,000 and $2,100,000, respectively, decreased 19.2% and 13.8%, respectively, below the prior fiscal year. The decrease was primarily a result of a decline in professional fees during the six months ended October 31, 2018.
Income from Securities Transactions, net
During the six months ended October 31, 2018 and October 31, 2017, the Company’s income from securities transactions, net, primarily derived from dividend and interest income, was $237,000 and $187,000, respectively. Proceeds from maturities and sales of government debt securities classified as available-for-sale during the six months ended October 31, 2018 and October 31, 2017, were $4,638,000 and $1,394,000, respectively. There were no sales, or gains or losses from sales of equity securities during the six months ended October 31, 2018 or October 31, 2017.
Concentration
During the six months ended October 31, 2018, 19.2% of total publishing revenues of $18,022,000 were derived from a single customer.
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, 2018 and October 31, 2017 were 19.14% and 34.80%, respectively. The decline in the overall effective tax rate during the quarter ended October 31, 2018 is primarily a result of a decline in Federal Tax Rate and a decrease in the state and local allocation factors on the deferred tax on the unrealized gain from deconsolidation of EAM.
The Company's annualized overall effective tax rate fluctuates due to a number of factors, in addition to the new 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.
Liquidity and Capital Resources
The Company had working capital, defined as current assets less current liabilities, of $3,297,000 as of October 31, 2018 and working capital of $1,690,000 as of April 30, 2018. These amounts include short term unearned revenue of $18,325,000 and $19,717,000 reflected in total current liabilities at October 31, 2018 and April 30, 2018, respectively. Cash and short term securities were $23,645,000 and $23,785,000 as of October 31, 2018 and April 30, 2018, respectively.
The Company’s cash and cash equivalents include $3,726,000 and $4,982,000 at October 31, 2018 and April 30, 2018, respectively, invested primarily in Money Market Funds at brokers, which operate under Rule 2a-7 of the 1940 Securities and Exchange Act and invest primarily in short term U.S. government securities.
Cash from operating activities
The Company had cash inflows from operating activities of $3,604,000 during the six months ended October 31, 2018 compared to cash inflows from operations of $3,169,000 during the six months ended October 31, 2017. The increase in cash inflows from fiscal 2018 to fiscal 2019 was primarily attributable to the timing of payments for federal state and local income taxes, partially offset by the timing of prepaid expenses and a smaller decline in unearned prepaid revenues.
Cash from investing activities
The Company’s cash outflows from investing activities of $1,232,000 during the six months ended October 31, 2018, compared to cash outflows from investing activities of $1,720,000 during the six months ended October 31, 2017. During fiscal 2019, the Company continued to invest in fixed income securities. During the six months ended October 31, 2018, the Company invested $5,624,000 in fixed income securities and $6,000 in property and equipment as compared to $2,386,000 invested in fixed income securities and $393,000 in property and equipment in fiscal 2018.
Cash from financing activities
During the six months ended October 31, 2018, the Company’s cash outflows from financing activities were $3,728,000 and compared to cash outflows from financing activities of $3,646,000 during the six months ended October 31, 2017. Cash outflows for financing activities included $46,000 and $150,000 for the repurchase of 2,286 and 8,865 shares of the Company’s common stock under the September 19, 2012 board approved common stock repurchase program, during fiscal years 2019 and 2018, respectively. Quarterly dividend payments of $0.19 per share during the six months ended October 31, 2018 aggregated $3,682,000 as compared to $3,496,000 aggregated quarterly dividend payments of $0.18 per share during the six months ended October 31, 2017.
On October 19, 2018, the Board of Directors of Value Line declared a quarterly dividend of $0.19 per share. At October 31, 2018 there were 9,689,334 common shares outstanding as compared to 9,702,800 common shares outstanding at October 31, 2017. The Company expects financing activities to continue to include use of cash for dividend payments and common share repurchases 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, 2018, retained earnings and liquid assets were $47,626,000 and $23,645,000, respectively.
Seasonality
Our publishing revenues are comprised of subscriptions which are generally annual subscriptions, paid in advance. 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.
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 2016-02, Leases (Topic 842) (“ASU 2016-02"). The core principle of Topic 842 requires that a lessee should recognize the assets and liabilities on the balance sheet and disclose key information about leasing arrangements. The amendments 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 using a modified retrospective approach. The adoption of ASU 2016-02 will not have a material impact on our consolidated condensed financial statements and related disclosures.
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”). 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 in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has adopted ASU 2016-15 in the first quarter of fiscal 2019. As a result, it has reclassified, within the Consolidated Condensed Statement of Cash Flows, $2.3 million and $2.1 million, for the six months ended October 31, 2018 and October 31, 2017, respectively, of EAM non-voting revenues interest and profits interest, from operating activities to investing activities.
In May 2014, 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)". 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. ASU No. 2016-18 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. 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 mailing 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 evaluating the impact of the 2018 ruling (
South Dakota vs. Wayfair
) on its operations.
Critical Accounting Estimates and Policies
The Company prepares its Consolidated Condensed Financial 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.