The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
The accompanying notes are an integral part of these consolidated condensed financial statements.
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:
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●
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maintaining revenue from subscriptions for the Company’s digital and print published products;
|
|
●
|
changes in market and economic conditions, including global financial issues;
|
|
●
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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;
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|
●
|
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;
|
|
●
|
the valuation of EAM’s intangible assets from time to time;
|
|
●
|
generating future revenues or collection of receivables from significant customers;
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|
●
|
dependence on key personnel;
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|
●
|
competition in the fields of publishing, copyright and investment management;
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|
●
|
the impact of government regulation on the Company’s and EAM’s businesses;
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|
●
|
availability of free or low cost investment data through discount brokers or generally over the internet;
|
|
●
|
terrorist attacks, cyber attacks and natural disasters;
|
|
●
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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, 2019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the period ended July 31, 2019; and other risks and uncertainties arising from time to time.
|
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors which may involve external factors over which we may have no control or changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at our discretion, could also have material adverse effects on future results. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC's rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, current plans, anticipated actions, and future financial conditions and results may differ from those expressed in any forward-looking information contained herein.
In this report, “Value Line,” “we,” “us,” “our” refers to Value Line, Inc. and “the Company” 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.
Business Environment
The long business expansion still appears to be rather securely in place as summer ends and fall begins. However, the acceleration in economic activity experienced last year, when the benefits of the Administration's major tax cut effected earlier were peaking, has run its course, and growth has moved onto a slower track. This moderating trend was seen in the second quarter of this year when growth slowed to 2.0%. Now, even with retail activity still reasonably strong, GDP growth is likely to move along at a pedestrian 2%, or so, during the next several quarters.
Behind this more deliberate pace of activity lie sharp declines in business and consumer sentiment and the first contraction in manufacturing activity in three years. Much of this latter shortfall is a consequence of the trade impasse between the United States and China. The recent imposition of additional tariffs on each country by the other will not lessen the conflict for certain. Although a diminution in trade tensions still seems possible eventually, the situation likely will remain unresolved for some time.
Through it all, it seems quite possible that we will muddle though without a business downturn for a year or two yet. Still, the margin for error is getting smaller, and a notable deterioration on the trade front, or a sustained downturn in sentiment could bring about such a reversal. For now, though, our thinking is that the economy will continue to amble forward in unimposing fashion into 2020.
Looking at the investment situation, it was negative trade talk on the one hand and the prospect of additional interest rate reductions by the Federal Reserve on the other that have contributed to a sharp back-and-forth pattern in the stock market in the past several months. Given the apparent sustainability of these two trends, we would expect further market choppiness to evolve before Wall Street presses forward strongly again.
Results of Operations for the Three Months Ended July 31, 2019 and July 31, 2018
The following table illustrates the Company’s key components of revenues and expenses.
|
|
Three Months Ended July 31,
|
|
($ in thousands, except earnings per share)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Income from operations
|
|
$
|
2,025
|
|
|
$
|
1,270
|
|
|
|
59.4
|
%
|
Non-voting revenues and non-voting profits interests from EAM Trust
|
|
|
2,871
|
|
|
|
2,271
|
|
|
|
26.4
|
%
|
Income from operations plus non-voting revenues and non-voting profits interests from EAM Trust
|
|
$
|
4,896
|
|
|
$
|
3,541
|
|
|
|
38.3
|
%
|
Operating expenses
|
|
$
|
7,592
|
|
|
$
|
7,701
|
|
|
|
-1.4
|
%
|
Income from securities transactions, net
|
|
$
|
141
|
|
|
$
|
114
|
|
|
|
23.7
|
%
|
Income before income taxes
|
|
$
|
5,037
|
|
|
$
|
3,655
|
|
|
|
37.8
|
%
|
Net income
|
|
$
|
3,690
|
|
|
$
|
3,104
|
|
|
|
18.9
|
%
|
Earnings per share
|
|
$
|
0.38
|
|
|
$
|
0.32
|
|
|
|
18.8
|
%
|
During the three months ended July 31, 2019, the Company’s income from operations of $2,025,000 was 59.4% above income from operations of $1,270,000 during the three months ended July 31, 2018. During the three months ended July 31, 2019, there were 9,660,631 average common shares outstanding as compared to 9,689,334 average common shares outstanding during the three months ended July 31, 2018. For the three months ended July 31, 2019, operating expenses were well controlled and decreased 1.4% below those during the three months ended July 31, 2018. During the three months ended July 31, 2019, the Company’s net income of $3,690,000, or $0.38 per share, was 18.9% above net income of $3,104,000, or $0.32 per share, for the three months ended July 31, 2018. The largest factors in the increase in net income during the three months ended July 31, 2019, compared to the prior fiscal year were an increase in copyright fees, an increase from revenues and profits interests in EAM Trust and well controlled overall expenses.
Total operating revenues
|
|
Three Months Ended July 31,
|
|
($ in thousands)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Investment periodicals and related publications:
|
|
|
|
|
|
|
|
|
|
|
|
|
Print
|
|
$
|
3,181
|
|
|
$
|
3,393
|
|
|
|
-6.2
|
%
|
Digital
|
|
|
3,852
|
|
|
|
3,899
|
|
|
|
-1.2
|
%
|
Total investment periodicals and related publications
|
|
|
7,033
|
|
|
|
7,292
|
|
|
|
-3.6
|
%
|
Copyright fees
|
|
|
2,584
|
|
|
|
1,679
|
|
|
|
53.9
|
%
|
Total publishing revenues
|
|
$
|
9,617
|
|
|
$
|
8,971
|
|
|
|
7.2
|
%
|
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 July 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Print
|
|
|
Digital
|
|
|
Print
|
|
|
Digital
|
|
New Sales
|
|
|
12.1
|
%
|
|
|
21.0
|
%
|
|
|
15.8
|
%
|
|
|
14.9
|
%
|
Conversion and Renewal Sales
|
|
|
87.9
|
%
|
|
|
79.0
|
%
|
|
|
84.2
|
%
|
|
|
85.1
|
%
|
Total Gross Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
During the three months ended July 31, 2019 new sales of digital publications increased as a percent of the total gross digital sales versus the prior fiscal year due to an increase in new Institutional gross sales of digital publications. During the three months ended July 31, 2019 new sales of print publications decreased as a percent of the total gross print sales versus the prior fiscal year due to a decrease in new gross sales of print publications.
|
|
As of July 31,
|
|
|
As of April 30,
|
|
|
As of July 31,
|
|
|
Change
|
|
($ in thousands)
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
|
July-19 vs.
Apr-19
|
|
|
July-19 vs.
July-18
|
|
Unearned subscription revenue (current and long-term liabilities)
|
|
$
|
23,494
|
|
|
$
|
25,483
|
|
|
$
|
24,129
|
|
|
|
-7.8
|
%
|
|
|
-2.6
|
%
|
Unearned subscription revenue as of July 31, 2019 is 2.6% below July 31, 2018 and is 7.8% below April 30, 2019. 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.
Investment periodicals and related publications revenues
Investment periodicals and related publications revenues of $7,033,000 decreased 3.6%, during the three months ended July 31, 2019, 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 July 31, 2019 was 4.6% below total product line circulation at July 31, 2018. During the three months ended July 31, 2019 Institutional Sales department generated total sales orders of $2,420,000 and the retail telemarketing sales team generated total sales orders of $1,738,000.
Total print circulation at July 31, 2019 was 5.1% below the total print circulation at July 31, 2018. Print publication revenues of $3,181,000 decreased 6.2% during the three months ended July 31, 2019 as compared to the prior fiscal year. Total digital circulation at July 31, 2019 was 3.7% below total digital circulation at July 31, 2018 and digital publications revenues of $3,852,000 during the three months ended July 31, 2019 were 1.2% below the prior fiscal year.
Value Line serves primarily individual and professional investors in stocks, who pay generally on annual subscription plans, for basic services or as much as $100,000 or more annually for comprehensive premium quality research, not obtainable elsewhere. The ongoing goal of adding new subscribers has led us to experiment with varying terms for our reliable, proprietary research including periods of intensive promotion of “starter” services and publications. Further, new services and new features for existing services are regularly under consideration and development.
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. During the six month period ended July 31, 2019, the combined Ranking System “Rank 1 & 2” stocks’ increase of 10.7% outperformed the Russell 2000 Index’s increase of 5.0% during the comparable period. During the twelve month period ended July 31, 2019, the combined Ranking System “Rank 1 & 2” stocks’ decrease of 0.1% compared to the Russell 2000 Index’s decrease of 5.8% during the comparable period.
Copyright fees
During the three months ended July 31, 2019, copyright fees of $2,584,000 were 53.9% above those during the corresponding period 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 and a five star Lipper rating.
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.
Total assets in the Value Line Funds managed and/or distributed by EAM at July 31, 2019, were $3.42 billion, which is $760 million, or 28.6%, above total assets of $2.66 billion in the Value Line Funds managed and/or distributed by EAM at July 31, 2018. The increase reflects successful investment selection capturing market appreciation and positive net flows for the Value Line Funds, partially offset by net redemptions in eight of the eleven Funds over the twelve month period ended July 31, 2019.
Shares of Value Line Strategic Asset Management Trust (“SAM”) and Value Line Centurion Fund (“Centurion”) are only distributed within certain variable annuity and variable life insurance contracts issued by The Guardian Insurance & Annuity Company, Inc. (“GIAC”).
Value Line Mutual Funds
|
|
As of July 31,
|
|
($ in millions)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Variable annuity assets ("GIAC")
|
|
$
|
416
|
|
|
$
|
396
|
|
|
|
5.1
|
%
|
All other open end equity and hybrid fund assets
|
|
|
2,898
|
|
|
|
2,154
|
|
|
|
34.5
|
%
|
Total equity and hybrid funds
|
|
|
3,314
|
|
|
|
2,550
|
|
|
|
30.0
|
%
|
Fixed income funds
|
|
|
107
|
|
|
|
110
|
|
|
|
-2.7
|
%
|
Total EAM managed net assets
|
|
$
|
3,421
|
|
|
$
|
2,660
|
|
|
|
28.6
|
%
|
The Value Line Fund shareholders are provided a money market fund investment managed by Federated Government Obligations Fund.
As of July 31, 2019, 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. As of July 31, 2018, four 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 Asset Allocation Fund had the best performance for 2018 of any allocation fund in Morningstar’s allocation categories. The Value Line Mid-Cap Focused Fund, the Value Line Small Cap Opportunities Fund and the Value Line Capital Appreciation Fund have been named “Category Kings” in The Wall Street 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 three months ended July 31, 2019, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $5,147,000, 12b-1 fees and other fees of $1,979,000 and other income of $53,000. For the same period, total investment management fee waivers were $109,000 and 12b-1 fee waivers for three Value Line Funds were $173,000. During the three months ended July 31, 2019, EAM's net income was $566,000 after giving effect to Value Line’s non-voting revenues interest of $2,588,000, 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 three months ended July 31, 2018, before interest holder distributions, included total investment management fees earned from the Value Line Funds of $4,109,000, 12b-1 fees and other fees of $1,704,000 and other income of $71,000 which included dividend, interest and licensing fees income. For the same period, total investment management fee waivers were $111,000 and 12b-1 fee waivers for four Value Line Funds were $159,000. During the three months ended July 31, 2018, EAM's net income was $606,000 after giving effect to Value Line’s non-voting revenues interest of $1,968,000, but before distributions to voting profits interest holders and to the Company in respect of its 50% non-voting profits interest.
As of July 31, 2019, three of the Value Line Funds have all or a portion of the 12b-1 fees being waived, and one fund has partial investment management fee waivers in place. Although, under the terms of the EAM Declaration of Trust, the Company no longer receives or shares in the revenues from 12b-1 distribution fees, the Company could benefit from the fee waivers to the extent that the resulting reduction of expense ratios and enhancement of the performance of the Value Line Funds attracts new assets.
The Value Line equity and hybrid funds assets represent 84.7%, variable annuity funds issued by GIAC represent 12.2%, and fixed income fund assets represent 3.1%, respectively, of total fund assets under management (“AUM”) as of July 31, 2019. At July 31, 2019, equity, hybrid and GIAC variable annuities AUM increased by 30.0% and fixed income AUM decreased by 2.7% as compared to fiscal 2019.
EAM - The Company’s non-voting revenues and non-voting profits interests
The Company holds non-voting revenues and non-voting profits interests in EAM which entitle the Company to receive from EAM an amount ranging from 41% to 55% of EAM's investment management fee revenues from its mutual fund and separate accounts business, and 50% of EAM’s net profits, not less than 90% of which is distributed in cash every fiscal quarter. The applicable recent non-voting revenues interest percentage for the first quarter of fiscal 2020 was 50.71%.
The Company recorded income from its non-voting revenues interest and its non-voting profits interest in EAM as follows:
|
|
Three Months Ended July 31,
|
|
($ in thousands)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Non-voting revenues interest
|
|
$
|
2,588
|
|
|
$
|
1,968
|
|
|
|
31.5
|
%
|
Non-voting profits interest
|
|
|
283
|
|
|
|
303
|
|
|
|
-6.6
|
%
|
|
|
$
|
2,871
|
|
|
$
|
2,271
|
|
|
|
26.4
|
%
|
Operating expenses
|
|
Three Months Ended July 31,
|
|
($ in thousands)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Advertising and promotion
|
|
$
|
943
|
|
|
$
|
920
|
|
|
|
2.5
|
%
|
Salaries and employee benefits
|
|
|
4,385
|
|
|
|
4,479
|
|
|
|
-2.1
|
%
|
Production and distribution
|
|
|
1,165
|
|
|
|
1,315
|
|
|
|
-11.4
|
%
|
Office and administration
|
|
|
1,099
|
|
|
|
987
|
|
|
|
11.3
|
%
|
Total expenses
|
|
$
|
7,592
|
|
|
$
|
7,701
|
|
|
|
-1.4
|
%
|
Expenses within the Company are categorized into advertising and promotion, salaries and employee benefits, production and distribution, office and administration.
Operating expenses of $7,592,000 during the three months ended July 31, 2019 were 1.4% below those during the three months ended July 31, 2018. Production and distribution expense categories decreased 11.4% as a result of cost controls and a decline in amortization of internally developed software during the three months ended July 31, 2019.
Advertising and promotion
During the three months ended July 31, 2019, advertising and promotion expenses of $943,000 increased 2.5% as compared to the prior fiscal year. During the three months ended July 31, 2019, a $47,000 increase in media marketing expenses and institutional sales promotion was offset by a $40,000 decrease in direct mail expenses. During the three months ended July 31, 2019 sales commissions increased 4.4% as compared to fiscal 2019.
Salaries and employee benefits
During the three months ended July 31, 2019, salaries and employee benefits of $4,385,000 decreased 2.1% below the prior fiscal year primarily due to decreases in salaries and employee benefits in the Information Technology department (“IT”), reflecting completion of certain initiatives to upgrade operating systems.
Production and distribution
During the three months ended July 31, 2019, production and distribution expenses of $1,165,000 decreased 11.4% below the prior fiscal year. During the three months ended July 31, 2019, a decrease of $86,000 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 $53,000 due to a 5.1% decrease in print circulation during the three months ended July 31, 2019.
Office and administration
During the three months ended July 31, 2019, office and administrative expenses of $1,099,000 increased 11.3% above the prior fiscal year. The increase during the three months ended July 31, 2019 was primarily a result of an increase in professional fees and an increase in operating lease amortization expense in fiscal 2020.
Concentration
During the three months ended July 31, 2019, 26.9% of total publishing revenues of $9,617,000 were derived from a single customer.
Income from Securities Transactions, net
During the three months ended July 31, 2019 and July 31, 2018, the Company’s income from securities transactions, net, primarily derived from dividend and interest income, was $141,000 and $114,000, respectively. Proceeds from maturities and sales of government debt securities classified as available-for-sale during the three months ended July 31, 2019 and July 31, 2018, were $2,973,000 and $1,637,000, respectively. There were no sales or proceeds from sales of equity securities during the three months ended July 31, 2019 or July 31, 2018.
Effective income tax rate
The overall effective income tax rates, as a percentage of pre-tax ordinary income for the three months ended July 31, 2019 and July 31, 2018 were 26.74% and 15.07%, respectively. The increase in the overall change in the effective Federal tax rate during the quarter ended July 31, 2019 is primarily a result of an increase in the state and local income taxes as a result of changes in state and local tax legislation and the offset of a lowering of NYC tax allocation factor on deferred taxes in fiscal 2019. 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 $6,118,000 as of July 31, 2019 and $6,014,000 as of April 30, 2019. These amounts include short-term unearned revenue of $18,593,000 and $20,008,000 reflected in total current liabilities at July 31, 2019 and April 30, 2019, respectively. Cash and short-term securities were $26,303,000 and $28,321,000 as of July 31, 2019 and April 30, 2019, respectively.
The Company’s cash and cash equivalents include $3,080,000 and $5,617,000 at July 31, 2019 and April 30, 2019, respectively, invested primarily in 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 outflows from operating activities of $102,000 during the three months ended July 31, 2019 compared to cash inflows from operating activities of $1,429,000 during the three months ended July 31, 2018. The decrease in cash inflows from fiscal 2019 to fiscal 2020 is primarily attributable to timing of the receipt of copyright fees as compared to the prior fiscal year and the decline in unearned publishing subscriber orders.
Cash from investing activities
The Company’s cash outflows from investing activities of $648,000 during the three months ended July 31, 2019 compared to cash outflows from investing activities of $491,000 for the three months ended July 31, 2018. Cash outflows for the three months ended July 31, 2019 were higher than in fiscal 2019 primarily due to the additional equity securities investments in fiscal 2020.
Cash from financing activities
During the three months ended July 31, 2019, the Company’s cash outflows from financing activities were $2,025,000 and compared to cash outflows from financing activities of $1,887,000 for the three months ended July 31, 2018. Cash outflows for financing activities included $92,000 and $46,000 for the repurchase of 3,857 shares and 2,286 shares of the Company’s common stock under the October 19, 2018 and the September 19, 2012 board approved common stock repurchase programs, during fiscal years 2020 and 2019, respectively. Quarterly dividend payments of $0.20 per share during fiscal 2020 aggregated $1,933,000 and compared to quarterly dividend payments of $0.19 per share during fiscal 2019 which aggregated $1,841,000.
At July 31, 2019 there were 9,659,704 common shares outstanding as compared to 9,689,442 common shares outstanding at July 31, 2018. The Company expects financing activities to continue to include use of cash for dividend 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 July 31, 2019, and April 30, 2019, retained earnings were $50,356,000 and $48,598,000, respectively, and liquid assets were $26,303,000 and $28,321,000, 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.
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 firm 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 applicable state laws.
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.