Results of Operations
The Company continues to operate as two different businesses: (1) The Traditional Business, being the business of newspaper publishing and related services that the Company had before 1999 when it purchased a software company, and (2) Journal Technologies, Inc. (“Journal Technologies”), a wholly-owned subsidiary which supplies case management software systems and related products to courts, prosecutor and public defender offices, probation departments and other justice agencies, including administrative law organizations, city and county governments and bar associations. These organizations use the Journal Technologies family of products to help manage cases and information electronically, to interface with other critical justice partners and to extend electronic services to bar members and the public, including efiling and a website to pay traffic citations online. These products are licensed to more than 500 organizations in 42 states and internationally.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and unrealized net (losses) gains on investments, net of taxes, as summarized below:
Comprehensive Income (Loss)
|
|
|
|
Fiscal Year Ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,201,000
|
|
|
$
|
(918,000
|
)
|
|
$
|
(1,043,000
|
)
|
Net increase (decrease) in unrealized appreciation of investments (net of taxes)
|
|
|
(5,823,000
|
)
|
|
|
35,316,000
|
|
|
|
(2,214,000
|
)
|
Reclassification adjustment of other-than-temporary impairment losses recognized in net income (net of taxes)
|
|
|
3,350,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
$
|
5,728,000
|
|
|
$
|
34,398,000
|
|
|
$
|
(3,257,000
|
)
|
Fiscal 2018 compared with fiscal 2017
Consolidated operating revenues were $40,703,000 and $41,384,000 for fiscal year ended September 30, 2018 and 2017, respectively. This decrease of $681,000 was primarily from (i) a $1,644,000 reduction in Journal Technologies’ consulting fees due to fewer go-lives in fiscal 2018 and (ii) a $168,000 reduction in The Traditional Business’s trustee sale notice and related service fee revenues and a $253,000 reduction in circulation revenues, partially offset by increased Journal Technologies’ license and maintenance fees of $1,188,000 and public service fees of $173,000. The Company’s revenues derived from Journal Technologies’ operations constituted about 58% of the Company’s total operating revenues for both fiscal 2018 and fiscal 2017.
Consolidated operating expenses increased by $212,000 to $54,763,000 from $54,551,000. Total personnel costs increased by $2,083,000 (7%) to $33,832,000 from $31,749,000 primarily resulting from additional personnel costs for Journal Technologies. Outside services decreased by $265,000 (6%) to $4,287,000 from $4,552,000 mainly because of decreased contractor’s costs for Daily Journal. Depreciation and amortization costs, which included primarily the amortization of Journal Technologies’ intangible assets of $3,058,000 and $4,895,000 for fiscal 2018 and 2017, respectively, decreased by $1,908,000 to $3,678,000 from $5,586,000 mainly because all intangible assets became fully amortized during fiscal 2018. Other general and administrative expenses increased by $654,000 (6%) to $11,329,000 from $10,675,000 mainly because of increased rent expenses of $254,000 as we expanded the Colorado office and other computer related expenses of $372,000 for Journal Technologies.
The Company’s non-operating income, net of expenses, decreased by $2,378,000 (47%) to $2,721,000 from $5,099,000 primarily resulting from (i) the non-cash other-than-temporary impairment losses on investments of $4,560,000, partially offset by the capital gains on sales of marketable securities and others of $3,182,000, (ii) increases in the interest rate on the two acquisition margin loans of $229,000 and (iii) the prior year’s interest and penalty expense reversal of $743,000 for uncertain and unrecognized tax benefits.
During fiscal 2018, consolidated pretax loss was $11,339,000 as compared with $8,068,000 in the prior year. There was consolidated net income (after tax benefits) of $8,201,000 ($5.94 per share) for fiscal 2018 primarily due to tax benefits resulting from the December 2017 Tax Cuts and Jobs Act (the “Tax Act”) as compared with a net loss of $918,000 (-$0.66 per share) in the prior year. (See
Taxes
.)
At September 30, 2018, the aggregate fair market value of the Company’s marketable securities was $212,296,000. These securities had approximately $158,407,000 of unrealized gains before taxes of $42,151,000 and generated approximately $4,808,000 in dividends and interest income in fiscal 2018 which lowers the Company’s effective income tax rate because of the dividends received deduction. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.
Additional details about each of the Company’s reportable segments, and its corporate income and expenses, is set forth below:
Overall Financial Results (000)
|
|
For the twelve months ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
Business
|
|
|
Journal
Technologies
|
|
|
Corporate
|
|
|
Total
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
9,112
|
|
|
$
|
9,104
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
9,112
|
|
|
$
|
9,104
|
|
Circulation
|
|
|
5,401
|
|
|
|
5,654
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
5,401
|
|
|
|
5,654
|
|
Advertising service fees and other
|
|
|
2,659
|
|
|
|
2,812
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
2,659
|
|
|
|
2,812
|
|
Licensing and maintenance fees
|
|
|
---
|
|
|
|
---
|
|
|
|
17,225
|
|
|
|
16,037
|
|
|
|
---
|
|
|
|
---
|
|
|
|
17,225
|
|
|
|
16,037
|
|
Consulting fees
|
|
|
---
|
|
|
|
---
|
|
|
|
2,832
|
|
|
|
4,476
|
|
|
|
---
|
|
|
|
---
|
|
|
|
2,832
|
|
|
|
4,476
|
|
Other public service fees
|
|
|
---
|
|
|
|
---
|
|
|
|
3,474
|
|
|
|
3,301
|
|
|
|
---
|
|
|
|
---
|
|
|
|
3,474
|
|
|
|
3,301
|
|
Total operating revenues
|
|
|
17,172
|
|
|
|
17,570
|
|
|
|
23,531
|
|
|
|
23,814
|
|
|
|
---
|
|
|
|
---
|
|
|
|
40,703
|
|
|
|
41,384
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
10,381
|
|
|
|
10,548
|
|
|
|
23,451
|
|
|
|
21,201
|
|
|
|
---
|
|
|
|
---
|
|
|
|
33,832
|
|
|
|
31,749
|
|
Amortization of intangible assets
|
|
|
---
|
|
|
|
---
|
|
|
|
3,058
|
|
|
|
4,895
|
|
|
|
---
|
|
|
|
---
|
|
|
|
3,058
|
|
|
|
4,895
|
|
Others
|
|
|
6,459
|
|
|
|
7,304
|
|
|
|
11,414
|
|
|
|
10,603
|
|
|
|
---
|
|
|
|
---
|
|
|
|
17,873
|
|
|
|
17,907
|
|
Total operating expenses
|
|
|
16,840
|
|
|
|
17,852
|
|
|
|
37,923
|
|
|
|
36,699
|
|
|
|
---
|
|
|
|
---
|
|
|
|
54,763
|
|
|
|
54,551
|
|
Income (loss) from operations
|
|
|
332
|
|
|
|
(282
|
)
|
|
|
(14,392
|
)
|
|
|
(12,885
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
(14,060
|
)
|
|
|
(13,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and interest income
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
4,808
|
|
|
|
4,844
|
|
|
|
4,808
|
|
|
|
4,844
|
|
Other income
|
|
|
---
|
|
|
|
22
|
|
|
|
---
|
|
|
|
---
|
|
|
|
37
|
|
|
|
12
|
|
|
|
37
|
|
|
|
34
|
|
Interest expenses on note payable collateralized by real estate
|
|
|
(95
|
)
|
|
|
(100
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(95
|
)
|
|
|
(100
|
)
|
Interest expense on margin loans
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(651
|
)
|
|
|
(422
|
)
|
|
|
(651
|
)
|
|
|
(422
|
)
|
Capital gains on sales of marketable securities and others
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
3,182
|
|
|
|
---
|
|
|
|
3,182
|
|
|
|
---
|
|
Other-than-temporary impairment losses on investments
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(4,560
|
)
|
|
|
---
|
|
|
|
(4,560
|
)
|
|
|
---
|
|
Interest expense reversal for uncertain and unrecognized tax benefits
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
743
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
743
|
|
Pretax income (loss)
|
|
$
|
237
|
|
|
$
|
(360
|
)
|
|
$
|
(14,392
|
)
|
|
$
|
(12,142
|
)
|
|
$
|
2,816
|
|
|
$
|
4,434
|
|
|
$
|
(11,339
|
)
|
|
$
|
(8,068
|
)
|
The Traditional Business
The Traditional Business segment’s pretax income increased by $597,000 to pretax income of $237,000 from a pretax loss of $360,000.
Advertising revenues increased by $8,000 to $9,112,000 from $9,104,000, primarily resulting from increases in conference revenues of $92,000 and net government notice advertising revenues of $65,000, partially offset by declines in trustee sale notice advertising revenues of $149,000.
Trustee sale notices are very much dependent on the number of California and Arizona foreclosures for which public notice advertising is required by law. The number of foreclosure notices published by the Company decreased by 13% during the twelve months ended September 30, 2018 as compared to the prior year. Because this slowing is expected to continue, the Company expects there will be fewer foreclosure notice and other public notice advertisements and declining revenues in fiscal 2019, and the Company’s print-based earnings will also likely decline significantly because it will be impractical for the Company to offset all revenue losses by expense reduction. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 88% of the total public notice advertising revenues in fiscal 2018. Public notice advertising revenues and related advertising and other service fees constituted about 21% of the Company’s total operating revenues for both fiscal 2018 and 2017. Because of this concentration, the Company’s revenues would be significantly adversely affected if California and Arizona eliminated the legal requirement to publish public notices in adjudicated newspapers of general circulation, as had been recently implemented in Arizona for one notice type that has represented approximately $500,000 in annual revenues for the Company. Also, if the adjudication of one or more of the Company’s newspapers was challenged and revoked, those newspapers would no longer be eligible to publish public notice advertising, and it could have a material adverse effect on the Company’s revenues.
The Daily Journals accounted for about 89% of The Traditional Business’ total circulation revenues, which declined by $253,000 to $5,401,000 from $5,654,000. The court rule and judicial profile services generated about 8% of the total circulation revenues, with the other newspapers and services accounting for the balance. Advertising service fees and other are Traditional Business segment revenues, which include primarily (i) agency commissions received from outside newspapers in which the advertising is placed, and (ii) fees generated when filing notices with government agencies.
The Traditional Business segment operating expenses decreased by $1,012,000 (6%) to $16,840,000 from $17,852,000, primarily due to decreased personnel and contractor costs.
Journal Technologies
Journal Technologies’ business segment pretax loss increased by $2,250,000 (19%) to $14,392,000 from $12,142,000, after recording the interest and penalty expense reversal of $743,000 for uncertain and unrecognized tax benefits in the prior year and including the amortization costs of intangible assets of $3,058,000 for fiscal 2018 and $4,895,000 for fiscal 2017.
Revenues decreased by $283,000 (1%) to $23,531,000 from $23,814,000 in the prior year. Licensing and maintenance fees increased by $1,188,000 (7%) to $17,225,000 from $16,037,000. Consulting fees decreased by $1,644,000 (37%) to $2,832,000 from $4,476,000. Deferred revenues on installation contracts primarily represent the fair value of advances from customers of Journal Technologies for installation services and are recognized upon final project go-lives. Deferred revenues on license and maintenance contracts represent prepayments of annual license and maintenance fees and are recognized ratably over the maintenance period. Other public service fees increased by $173,000 (5%) to $3,474,000 from $3,301,000 primarily due to an increase in the number of traffic tickets processed through Journal Technologies’ products.
Operating expenses increased by $1,224,000 (3%) to $37,923,000 from $36,699,000, primarily due to increased personnel costs.
Intangible assets, including customer relationships and developed technology from the fiscal 2013 acquisitions, were fully amortized on a straight-line basis over five years for financial statement purposes due to the short life cycle of technology on which customer relationships depend, and are being amortized over 15 years for tax purposes. Goodwill, which is not amortized for financial statement purposes, is amortized over 15 years for tax purposes. Goodwill represents the expected synergies in expanding the Company’s software business. Goodwill is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the value may not be recoverable. Considered factors for potential goodwill impairment evaluation include the current year’s operating financial results before intangible amortization, fluctuations of revenues, changes in the market place, the status of installation contracts and new business, among other things. Journal Technologies is continuing to update and upgrade its software products. These costs are expensed as incurred and will impact earnings at least through the foreseeable future.
Taxes
The Tax Act reduced the maximum corporate income tax rate from 35% to 21%, effective January 1, 2018. The Company has completed its review of the Tax Act. The impact to its financial statements is as follows: (i) current income tax expense or benefit is calculated using a blended rate of 24.28% pursuant to IRC Section 15, (ii) deferred tax expense includes a discrete net tax benefit of approximately $16 million resulting from a revaluation of deferred tax assets and liabilities to the expected tax rate that will be applied when temporary differences are expected to reverse, (iii) items that were expected to reverse during fiscal 2018 were valued at the blended rate of 24.28% while temporary differences that will reverse after fiscal 2018 were valued at the 21% rate, and (iv) approximately $20 million of the revaluation of deferred taxes relates to items that were initially recorded as accumulated other comprehensive income (“AOCI”). This revaluation of approximately $20 million was recorded as a component of income tax expense or benefit in continuing operations.
During fiscal 2018, the Company recorded an income tax benefit of $19,540,000 on a pretax loss of $11,339,000. The effective tax rate (before the discrete Tax Act item discussed above) was greater than the statutory rate primarily due to the dividends received deduction which increases the loss for tax purposes.
On a pretax loss of $8,068,000 for fiscal 2017, the Company recorded an income tax benefit of $7,150,000 which included a reversal of an accrued liability of approximately $2,665,000 for uncertain and unrecognized tax benefits relating to an acquisition in fiscal 2013. The Internal Revenue Service concluded its examination of the Company’s fiscal 2014 income tax return with no proposed changes to the tax position that gave rise to this liability. As a result, this liability was reversed along with the related accrued interest and penalty expense of $743,000. In addition, a deferred tax liability, in the amount of $352,000, relating to temporary differences that would only exist if the uncertain tax position was never recognized, was reversed. The effective tax rate (before the discrete IRS item) was greater than the statutory rate mainly resulting from the dividends received deduction. The Company’s effective tax rate was 172% and 89% for fiscal 2018 and 2017, respectively.
The Company files consolidated federal income tax returns in the United States and with various state jurisdictions and is no longer subject to examinations for fiscal years before fiscal 2015 with regard to federal income taxes and fiscal 2013 for state income taxes.
Fiscal 2017 compared with fiscal 2016
Consolidated revenues were $41,384,000 and $41,612,000 for fiscal year ended September 30, 2017 and 2016, respectively. This decrease of $228,000 was primarily from the reduction in (i) The Traditional Business’s trustee sale notice and its related service fee revenues of $724,000 and (ii) Journal Technologies’ public service fees of $1,051,000 primarily due to a reduction in the number of traffic tickets processed through Journal Technologies’ products, partially offset by increased Journal Technologies’ license and maintenance fees of $1,279,000 and consulting fees of $391,000. The Company’s revenues derived from Journal Technologies’ operations constituted about 58% and 56% of the Company’s total operating revenues for fiscal 2017 and 2016, respectively.
Consolidated operating expenses increased by $6,299,000 (13%) to $54,551,000 from $48,252,000, primarily resulting from additional personnel costs and services for Journal Technologies. Total personnel costs increased by $4,368,000 (16%) to $31,749,000 from $27,381,000. Outside services increased by $823,000 (22%) to $4,552,000 from $3,729,000 mainly because of increased contractors’ costs for Journal Technologies. Depreciation and amortization costs, which included primarily the amortization of Journal Technologies’ intangible assets of $4,895,000 for both fiscal 2017 and 2016, decreased by $123,000 to $5,586,000 from $5,709,000. Other general and administrative expenses increased by $1,295,000 (14%) to $10,675,000 from $9,380,000 mainly because of increased accounting and legal fees and other hosting service fees for Journal Technologies.
The Company’s non-operating income, net of expenses, increased by $1,437,000 (39%) to $5,099,000 from $3,662,000 primarily because of the interest and penalty expense reversal of $743,000 for uncertain and unrecognized tax benefits and more dividend income, partially offset by increases in the interest rate on the two acquisition margin loans and additional interest expense for the Company’s real estate loan.
During fiscal 2017, consolidated pretax loss was $8,068,000 as compared with $2,978,000 in the prior year. There was a consolidated net loss after tax benefits of $918,000 (-$0.66 per share) for fiscal 2017 as compared with $1,043,000 (-$0.76 per share) in the prior year.
At September 30, 2017, the aggregate fair market value of the Company’s marketable securities was $229,265,000. These securities had approximately $165,872,000 of unrealized gains before taxes of $64,550,000 and generated approximately $4,844,000 in dividends and interest income in fiscal 2017 which lowers the Company’s effective income tax rate because of the dividends received deduction. Most of the unrealized gains were in the common stocks of three U.S. financial institutions and one foreign manufacturer.
Additional details about each of the Company’s reportable segments, and its corporate income and expenses, is set forth below:
Overall Financial Results (000)
|
|
For the twelve months ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
Business
|
|
|
Journal
Technologies
|
|
|
Corporate
|
|
|
Total
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
9,104
|
|
|
$
|
9,854
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
9,104
|
|
|
$
|
9,854
|
|
Circulation
|
|
|
5,654
|
|
|
|
5,912
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
5,654
|
|
|
|
5,912
|
|
Advertising service fees and other
|
|
|
2,812
|
|
|
|
2,651
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
2,812
|
|
|
|
2,651
|
|
Licensing and maintenance fees
|
|
|
---
|
|
|
|
---
|
|
|
|
16,037
|
|
|
|
14,758
|
|
|
|
---
|
|
|
|
---
|
|
|
|
16,037
|
|
|
|
14,758
|
|
Consulting fees
|
|
|
---
|
|
|
|
---
|
|
|
|
4,476
|
|
|
|
4,085
|
|
|
|
---
|
|
|
|
---
|
|
|
|
4,476
|
|
|
|
4,085
|
|
Other public service fees
|
|
|
---
|
|
|
|
---
|
|
|
|
3,301
|
|
|
|
4,352
|
|
|
|
---
|
|
|
|
---
|
|
|
|
3,301
|
|
|
|
4,352
|
|
Total operating revenues
|
|
|
17,570
|
|
|
|
18,417
|
|
|
|
23,814
|
|
|
|
23,195
|
|
|
|
---
|
|
|
|
---
|
|
|
|
41,384
|
|
|
|
41,612
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
10,548
|
|
|
|
9,997
|
|
|
|
21,201
|
|
|
|
17,384
|
|
|
|
---
|
|
|
|
---
|
|
|
|
31,749
|
|
|
|
27,381
|
|
Amortization
of intangible assets
|
|
|
---
|
|
|
|
142
|
|
|
|
4,895
|
|
|
|
4,895
|
|
|
|
---
|
|
|
|
---
|
|
|
|
4,895
|
|
|
|
5,037
|
|
Others
|
|
|
7,304
|
|
|
|
7,101
|
|
|
|
10,603
|
|
|
|
8,733
|
|
|
|
---
|
|
|
|
---
|
|
|
|
17,907
|
|
|
|
15,834
|
|
Total operating expenses
|
|
|
17,852
|
|
|
|
17,240
|
|
|
|
36,699
|
|
|
|
31,012
|
|
|
|
---
|
|
|
|
---
|
|
|
|
54,551
|
|
|
|
48,252
|
|
(Loss) income from operations
|
|
|
(282
|
)
|
|
|
1,177
|
|
|
|
(12,885
|
)
|
|
|
(7,817
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
(13,167
|
)
|
|
|
(6,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and interest income
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
4,844
|
|
|
|
4,085
|
|
|
|
4,844
|
|
|
|
4,085
|
|
Other income
|
|
|
22
|
|
|
|
52
|
|
|
|
---
|
|
|
|
---
|
|
|
|
12
|
|
|
|
9
|
|
|
|
34
|
|
|
|
61
|
|
Interest expenses on note payable collateralized by real estate
|
|
|
(100
|
)
|
|
|
(88
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(100
|
)
|
|
|
(88
|
)
|
Interest expense on margin loans
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(422
|
)
|
|
|
(284
|
)
|
|
|
(422
|
)
|
|
|
(284
|
)
|
Interest expense reversal (accrual) for uncertain and unrecognized tax benefits
|
|
|
---
|
|
|
|
---
|
|
|
|
743
|
|
|
|
(112
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
743
|
|
|
|
(112
|
)
|
Pretax (loss) income
|
|
$
|
(360
|
)
|
|
$
|
1,141
|
|
|
$
|
(12,142
|
)
|
|
$
|
(7,929
|
)
|
|
$
|
4,434
|
|
|
$
|
3,810
|
|
|
$
|
(8,068
|
)
|
|
$
|
(2,978
|
)
|
The Traditional Business
The Traditional Business segment’s pretax income decreased by $1,501,000 to a pretax loss of $360,000 from pretax income of $1,141,000.
Advertising revenues decreased by $750,000 to $9,104,000 from $9,854,000, primarily resulting from the declines in trustee sale notice advertising and its related service fee revenues of $724,000.
Trustee sale notices are very much dependent on the number of California and Arizona foreclosures for which public notice advertising is required by law. The number of foreclosure notices published by the Company decreased by 25% during the twelve months ended September 30, 2017 as compared to the prior year. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 89% of the total public notice advertising revenues in fiscal 2017. Public notice advertising revenues and related advertising and other service fees constituted about 21% and 23% of the Company’s total operating revenues for fiscal 2017 and 2016, respectively.
The Daily Journals accounted for about 88% of The Traditional Business’ total circulation revenues, which declined by $258,000 to $5,654,000 from $5,912,000. The court rule and judicial profile services generated about 10% of the total circulation revenues, with the other newspapers and services accounting for the balance. Advertising service fees and other are Traditional Business segment revenues, which include primarily (i) agency commissions received from outside newspapers in which the advertising is placed, and (ii) fees generated when filing notices with government agencies.
The Traditional Business segment operating expenses increased by $612,000 (4%) to $17,852,000 from $17,240,000, primarily due to increased personnel costs.
Journal Technologies
Journal Technologies’ business segment pretax loss increased by $4,213,000 (53%) to $12,142,000 from $7,929,000, after recording the interest and penalty expense reversal of $743,000 for uncertain and unrecognized tax benefits in March 2017 and including the amortization costs of intangible assets of $4,895,000 for both fiscal 2017 and 2016.
Revenues increased by $619,000 (3%) to $23,814,000 from $23,195,000 in the prior year. Licensing and maintenance fees increased by $1,279,000 (9%) to $16,037,000 from $14,758,000. Consulting fees also increased by $391,000 (10%) to $4,476,000 from $4,085,000. Other public service fees decreased by $1,051,000 (24%) to $3,301,000 from $4,352,000 primarily due to a reduction in the number of traffic tickets processed online for the public to pay traffic citations.
Operating expenses increased by $5,687,000 (18%) to $36,699,000 from $31,012,000, primarily due to increased personnel costs.
Taxes
At the beginning of fiscal 2017, the Company had a liability for uncertain and unrecognized tax benefits in the amount of $2,723,000 relating to an acquisition in fiscal 2013. During the second quarter of fiscal 2017, the Internal Revenue Service concluded its examination of the Company’s fiscal 2014 income tax return and proposed no changes to the tax position that gave rise to this liability. Consequently, this liability was reversed in March 2017 along with the related accrued interest and penalty expenses of $743,000. In addition, a deferred tax liability, in the amount of $352,000, relating to temporary differences that would only exist if the uncertain tax position was never recognized, was reversed. At September 30, 2016, the liability was approximately $2,723,000, after a reduction of $521,000 resulting from the recognition of deferred revenues and from the amortization of goodwill for tax purposes. During 2016 and 2015, interest expense of approximately $112,000 and $96,000 respectively, was recorded as “interest and penalty expense accrued for uncertain and unrecognized tax benefits”.
During fiscal 2017, the Company recorded an income tax benefit of $7,150,000 on pretax loss of $8,068,000. The effective tax rate (before the discrete item discussed above) was greater than the statutory rate primarily due to the dividends received deduction which increases the loss for tax purposes. On pretax loss of $2,978,000 for fiscal 2016, the Company recorded an income tax benefit of $1,935,000. The effective tax rate was greater than the statutory rate mainly resulting from the dividends received deduction. The Company’s effective tax rate was 89% and 65% for fiscal 2017 and 2016, respectively.
Reportable Segments
The Company’s Traditional Business is one reportable segment and the other is Journal Technologies. Additional details about each of the reportable segments and its corporate income and expenses is set forth below:
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
Business
|
|
|
Journal
Technologies
|
|
|
Corporate
|
|
|
Total
|
|
Fiscal 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, net
|
|
$
|
9,112,000
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
9,112,000
|
|
Circulation
|
|
|
5,401,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
5,401,000
|
|
Advertising service fees and other
|
|
|
2,659,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
2,659,000
|
|
Licensing and maintenance fees
|
|
|
---
|
|
|
|
17,225,000
|
|
|
|
---
|
|
|
|
17,225,000
|
|
Consulting fees
|
|
|
---
|
|
|
|
2,832,000
|
|
|
|
---
|
|
|
|
2,832,000
|
|
Other public service fees
|
|
|
---
|
|
|
|
3,474,000
|
|
|
|
---
|
|
|
|
3,474,000
|
|
Operating expenses
|
|
|
16,840,000
|
|
|
|
37,923,000
|
|
|
|
---
|
|
|
|
54,763,000
|
|
Income (loss) from operations
|
|
|
332,000
|
|
|
|
(14,392,000
|
)
|
|
|
---
|
|
|
|
(14,060,000
|
)
|
Dividends and interest income
|
|
|
---
|
|
|
|
---
|
|
|
|
4,808,000
|
|
|
|
4,808,000
|
|
Other income
|
|
|
---
|
|
|
|
---
|
|
|
|
37,000
|
|
|
|
37,000
|
|
Interest expense on note payable collateralized by real estate
|
|
|
(95,000
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
(95,000
|
)
|
Interest expense on margin loans
|
|
|
---
|
|
|
|
---
|
|
|
|
(651,000
|
)
|
|
|
(651,000
|
)
|
Capital gains on sales of marketable Securities and others
|
|
|
---
|
|
|
|
---
|
|
|
|
3,182,000
|
|
|
|
3,182,000
|
|
Other-than-temporary impairment losses on investments
|
|
|
---
|
|
|
|
---
|
|
|
|
(4,560,000
|
)
|
|
|
(4,560,000
|
)
|
Pretax (loss) income
|
|
|
237,000
|
|
|
|
(14,392,000
|
)
|
|
|
2,816,000
|
|
|
|
(11,339,000
|
)
|
Income tax benefit
|
|
|
490,000
|
|
|
|
695,000
|
|
|
|
18,355,000
|
|
|
|
19,540,000
|
|
Net (loss) income
|
|
|
727,000
|
|
|
|
(13,697,000
|
)
|
|
|
21,171,000
|
|
|
|
8,201,000
|
|
Total assets
|
|
|
19,602,000
|
|
|
|
29,885,000
|
|
|
|
214,511,000
|
|
|
|
263,998,000
|
|
Capital expenditures
|
|
|
212,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
212,000
|
|
Amortization of intangible assets
|
|
|
---
|
|
|
|
3,058,000
|
|
|
|
---
|
|
|
|
3,058,000
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
Business
|
|
|
Journal
Technologies
|
|
|
Corporate
|
|
|
Total
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, net
|
|
$
|
9,104,000
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
9,104,000
|
|
Circulation
|
|
|
5,654,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
5,654,000
|
|
Advertising service fees and other
|
|
|
2,812,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
2,812,000
|
|
Licensing and maintenance fees
|
|
|
---
|
|
|
|
16,037,000
|
|
|
|
---
|
|
|
|
16,037,000
|
|
Consulting fees
|
|
|
---
|
|
|
|
4,476,000
|
|
|
|
---
|
|
|
|
4,476,000
|
|
Other public service fees
|
|
|
---
|
|
|
|
3,301,000
|
|
|
|
---
|
|
|
|
3,301,000
|
|
Operating expenses
|
|
|
17,852,000
|
|
|
|
36,699,000
|
|
|
|
---
|
|
|
|
54,551,000
|
|
Loss from operations
|
|
|
(282,000
|
)
|
|
|
(12,885,000
|
)
|
|
|
---
|
|
|
|
(13,167,000
|
)
|
Dividends and interest income
|
|
|
---
|
|
|
|
---
|
|
|
|
4,844,000
|
|
|
|
4,844,000
|
|
Other income
|
|
|
22,000
|
|
|
|
---
|
|
|
|
12,000
|
|
|
|
34,000
|
|
Interest expense on note payable collateralized by real estate
|
|
|
(100,000
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
(100,000
|
)
|
Interest expense on margin loans
|
|
|
---
|
|
|
|
---
|
|
|
|
(422,000
|
)
|
|
|
(422,000
|
)
|
Interest and penalty expense reversal for uncertain and unrecognized tax benefits
|
|
|
---
|
|
|
|
743,000
|
|
|
|
---
|
|
|
|
743,000
|
|
Pretax (loss) income
|
|
|
(360,000
|
)
|
|
|
(12,142,000
|
)
|
|
|
4,434,000
|
|
|
|
(8,068,000
|
)
|
Income tax benefit (expense)
|
|
|
(2,000
|
)
|
|
|
7,910,000
|
|
|
|
(758,000
|
)
|
|
|
7,150,000
|
|
Net (loss) income
|
|
|
(362,000
|
)
|
|
|
(4,232,000
|
)
|
|
|
3,676,000
|
|
|
|
(918,000
|
)
|
Total assets
|
|
|
16,606,000
|
|
|
|
33,461,000
|
|
|
|
230,641,000
|
|
|
|
280,708,000
|
|
Capital expenditures
|
|
|
160,000
|
|
|
|
93,000
|
|
|
|
---
|
|
|
|
253,000
|
|
Amortization of intangible assets
|
|
|
---
|
|
|
|
4,895,000
|
|
|
|
---
|
|
|
|
4,895,000
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
Business
|
|
|
Journal
Technologies
|
|
|
Corporate
|
|
|
Total
|
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, net
|
|
$
|
9,854,000
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
9,854,000
|
|
Circulation
|
|
|
5,912,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
5,912,000
|
|
Advertising service fees and other
|
|
|
2,651,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
2,651,000
|
|
Licensing and maintenance fees
|
|
|
---
|
|
|
|
14,758,000
|
|
|
|
---
|
|
|
|
14,758,000
|
|
Consulting fees
|
|
|
---
|
|
|
|
4,085,000
|
|
|
|
---
|
|
|
|
4,085,000
|
|
Other public service fees
|
|
|
---
|
|
|
|
4,352,000
|
|
|
|
---
|
|
|
|
4,352,000
|
|
Operating expenses
|
|
|
17,240,000
|
|
|
|
31,012,000
|
|
|
|
---
|
|
|
|
48,252,000
|
|
Income (loss) from operations
|
|
|
1,177,000
|
|
|
|
(7,817,000
|
)
|
|
|
---
|
|
|
|
(6,640,000
|
)
|
Dividends and interest income
|
|
|
---
|
|
|
|
---
|
|
|
|
4,085,000
|
|
|
|
4,085,000
|
|
Other income
|
|
|
52,000
|
|
|
|
---
|
|
|
|
9,000
|
|
|
|
61,000
|
|
Interest expense on note payable collateralized by real estate
|
|
|
(88,000
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
(88,000
|
)
|
Interest expense on margin loans
|
|
|
---
|
|
|
|
---
|
|
|
|
(284,000
|
)
|
|
|
(284,000
|
)
|
Interest expense accrued for uncertain and unrecognized tax benefits
|
|
|
---
|
|
|
|
(112,000
|
)
|
|
|
---
|
|
|
|
(112,000
|
)
|
Pretax income (loss)
|
|
|
1,141,000
|
|
|
|
(7,929,000
|
)
|
|
|
3,810,000
|
|
|
|
(2,978,000
|
)
|
Income tax benefit (expense)
|
|
|
(530,000
|
)
|
|
|
3,140,000
|
|
|
|
(675,000
|
)
|
|
|
1,935,000
|
|
Net income (loss)
|
|
|
611,000
|
|
|
|
(4,789,000
|
)
|
|
|
3,135,000
|
|
|
|
(1,043,000
|
)
|
Total assets
|
|
|
17,644,000
|
|
|
|
39,786,000
|
|
|
|
168,016,000
|
|
|
|
225,446,000
|
|
Capital expenditures, including purchase of Logan building
|
|
|
3,662,000
|
|
|
|
117,000
|
|
|
|
---
|
|
|
|
3,779,000
|
|
Amortization of intangible assets
|
|
|
142,000
|
|
|
|
4,895,000
|
|
|
|
---
|
|
|
|
5,037,000
|
|
During fiscal 2018, 2017 and 2016, the Traditional Business had total operating revenues of $17,172,000, $17,570,000 and $18,417,000 of which $11,771,000, $11,916,000 and $12,505,000, respectively, were recognized after services were provided while $5,401,000, $5,654,000 and $5,912,000, respectively, were recognized ratably over the subscription terms. Total operating revenues for the Company’s software business were $23,531,000, $23,814,000 and $23,195,000, of which $7,437,000, $8,618,000 and $9,735,000, respectively, were recognized upon completion of services while $16,094,000, $15,196,000 and $13,460,000, respectively, were recognized ratably over the subscription periods.
Approximately 58% of the Company’s revenues during fiscal 2018 were derived from Journal Technologies, as compared with 58% and 56% in the prior two years. In addition, the Company’s revenues have been primarily from the United States, with approximately 1% from foreign countries. Journal Technologies’ revenues are all from governmental agencies.
The following table sets forth certain deferred obligations from October 1, 2017 through September 30, 2018:
|
|
Beginning
Balance
|
|
|
Addition
|
|
|
Recognized
|
|
|
Ending
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred subscriptions
|
|
$
|
3,284,000
|
|
|
$
|
5,291,000
|
|
|
$
|
(5,401,000
|
)
|
|
$
|
3,174,000
|
|
Deferred installation contracts
|
|
|
5,072,000
|
|
|
|
1,445,000
|
|
|
|
(3,963,000
|
)
|
|
|
2,554,000
|
|
Deferred maintenance agreements and others
|
|
|
10,201,000
|
|
|
|
20,255,000
|
|
|
|
(16,094,000
|
)
|
|
|
14,362,000
|
|
Disclosure of Contractual Obligations
The following table sets forth certain contractual obligations as of September 30, 2018:
Contractual Obligations (000
)
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
|
Total
|
|
Real estate loan
|
|
$
|
121
|
|
|
$
|
259
|
|
|
$
|
285
|
|
|
$
|
1,291
|
|
|
$
|
1,956
|
|
Obligations under operating leases
|
|
|
848
|
|
|
|
350
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1,198
|
|
Long-term accrued liabilities *
|
|
|
---
|
|
|
|
26
|
|
|
|
16
|
|
|
|
128
|
|
|
|
170
|
|
|
|
$
|
969
|
|
|
$
|
635
|
|
|
$
|
301
|
|
|
$
|
1,419
|
|
|
$
|
3,324
|
|
* The long-term accrued liabilities for the Management Incentive Plan are discounted to the present value using a discount rate of 6%.
In addition, during fiscal 2013, the Company borrowed from its investment margin account the aggregate purchase price of $29.5 million for two acquisitions, in each case pledging its marketable securities as collateral. These investment margin account borrowings do not mature. The interest rate for these investment margin account borrowings fluctuates based on the Federal Funds Rate plus 50 basis points with interest only payable monthly. The interest rate as of September 30, 2018 was 2.50%, an increase of .75% in interest rate during fiscal 2018 as compared with 1.75% after the same interest rate increase of .75% during fiscal 2017. During fiscal 2016, there was an interest rate increase of .25%. Prior to fiscal 2016, there had been no change to the interest rate which was at .75% since December 2012.
During the second quarter of fiscal 2017, the prior years’ accrual of liability of approximately $2,723,000 for uncertain and unrecognized tax benefits relating to one of the acquisitions in fiscal 2013 was completely reversed as the Internal Revenue Service concluded its examination of the Company’s fiscal 2014 income tax return and proposed no changes to the tax position that gave rise to this liability.
Liquidity and Capital Resources
During fiscal 2018, the Company’s cash and cash equivalents and marketable security positions decreased by $11,052,000 to $221,597,000 after the sale of the bonds for $8,125,000 with a capital gain of $3,180,000. Cash and cash equivalents were used for the purchase of capital assets of $212,000 and for operating activities of $1,881,000, which included a net decrease of $555,000 in accounts receivable and a net increase of $1,533,000 in deferred subscriptions, deferred installation contracts and deferred maintenance agreements and others.
The investments in marketable securities, which had a market value of about $212,296,000 at September 30, 2018, had approximately $158,407,000 of unrealized gains before estimated taxes of $42,151,000 and generated approximately $4,808,000 in dividends and interest income.
Cash flows from operating activities increased by $770,000 during fiscal 2018 as compared to the prior year primarily resulting from decreases in accounts receivable of $1,206,000 because of more customer payments. The net cash used in operating activities of $1,881,000 included net increases of $1,533,000 in deferred subscriptions, deferred installation contracts and deferred maintenance agreements and others.
As of September 30, 2018, the Company had working capital of $199,971,000, including the liabilities for deferred subscriptions, deferred installation and maintenance agreements and others of $19,914,000, which are scheduled to be earned within one year.
The Company believes that it will be able to fund its operations for the foreseeable future through its cash flows from operations and its current working capital and expects that any such cash flows will be invested in its businesses. The Company may or may not have the ability to borrow against its marketable securities. The Company also may entertain additional business acquisition opportunities. Any excess cash flows could be used to reduce the investment margin account liability or note payable collateralized by real estate or invested as management and the Board of Directors deem appropriate at the time.
Such investments may include additional securities of the companies in which the Company has already invested, securities of other companies, government securities (including U.S. Treasury Notes and Bills) or other instruments. The decision as to particular investments will be driven by the Company’s belief about the risk/reward profile of the various investment choices at the time, and it may utilize government securities as a default if attractive opportunities for a better return are not available. The Company’s Chairman of the Board, Charles Munger, is also the vice chairman of Berkshire Hathaway Inc., which maintains a substantial investment portfolio. The Company’s Board of Directors has utilized his judgment and suggestions, as well as those of J.P. Guerin, the Company’s vice chairman, when selecting investments, and both of them will continue to play an important role in monitoring existing investments and selecting any future investments.
As of September 30, 2018, the investments were concentrated in just six companies. Accordingly, a significant decline in the market value of one or more of the Company’s investments may not be offset by the hypothetically better performance of other investments, and that could result in a large decrease in the Company’s shareholders’ equity and, under certain circumstances, in the recognition of impairment losses in the Company’s income statement (such as the other-than-temporary impairment losses of $4,560,000 recognized during this year).
Critical Accounting Policies and Estimates
The Company’s financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Management believes that revenue recognition, accounting for software costs, fair value measurement and disclosures (including for the long-term Incentive Plan liabilities), testing for goodwill impairment, income taxes and segment reporting are critical accounting policies and estimates.
The Company recognizes revenues in accordance with the provisions of ASU No. 2014-09,
Revenue from Contracts with Customers (ASC Topic 606)
. For the Traditional Business, proceeds from the sale of subscriptions for newspapers, court rule books and other publications and other services are recorded as deferred revenue and are included in earned revenue only when the services are provided, generally over the subscription term. Advertising revenues are recognized when advertisements are published and are net of agency commissions.
Journal Technologies contracts may include several products and services, which are generally distinct and include separate transaction pricing and performance obligations. Most are one-transaction contracts. These current subscription-type contract revenues include (i) implementation consulting fees to configure the system to go-live, (ii) subscription software license, maintenance (including updates and upgrades) and support fees, and (iii) third-party hosting fees when used. Revenues for consulting are recognized at point of delivery (go-live) upon completion of services, and subscription and advertising revenues are recognized ratably (using the output method based on time-elapsed). These contracts include assurance warranty provisions for limited periods and do not include financing terms. For some contracts, the Company acts as a principal with respect to certain services, such as data conversion, interfaces and hosting that are provided by third-parties, and recognizes such revenues on a gross basis. For legacy contracts with perpetual license arrangements, licenses and consulting services are recognized at point of delivery (go-live), and maintenance revenues are recognized ratably after the go-live. Other public service fees are earned and recognized as revenues when the Company processes credit card payments on behalf of the courts via its websites through which the public can efile cases and pay traffic citations and other fees.
ASC 985-20,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed
, provides that costs related to the research and development of a new software product are to be expensed as incurred until the technological feasibility of the product is established. Accordingly, costs related to the development of new software products are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized, subject to expected recoverability. In general, “technological feasibility” is achieved when the developer has established the necessary skills, hardware and technology to produce a product and a detailed program design has been (i) completed, (ii) traced to the product specifications and (iii) reviewed for high-risk development issues. The Company believes its process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no software development costs have been capitalized to date.
ASC 820,
Fair Value Measurement and Disclosures
, requires the Company to (i) disclose the amounts of transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers and (ii) present separately information about purchases, sales, issuances and settlements in the reconciliation of Level 3 measurements. This guidance also provides clarification of existing disclosures requiring the Company to determine each class of its investments based on risk and to disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 measurements. The Company made no transfers in and out of Level 1 and Level 2 measurements in fiscal years 2018, 2017 and 2016. During that time all of the Company’s investments have been quoted on public markets and, therefore, all fair value calculations have been based on Level 1 measurements. The estimated Incentive Plan’s future commitment is calculated based on an average of the prior year (fiscal 2017) and the current year’s pretax earnings before certain items, discounted to the present value at 6% since each granted Incentive Plan Unit will expire over its remaining life term of up to 10 years.
The Company analyzes goodwill for possible impairment under ASC 350,
Intangibles – Goodwill and Other
, annually or whenever events or changes in circumstances indicate that the value may not be recoverable. Considered factors for potential goodwill impairment evaluation for the reporting units include current year’s business profitability before intangible amortization, fluctuations of revenues, changes in the market place, the status of installation contracts and new business, among other things. In addition, ASC 2011-08,
Testing Goodwill for Impairment
, allows for the option of performing a qualitative assessment before calculating the fair value of a reporting unit. If it is determined based on qualitative factors that there is no impairment to goodwill, then the fair value of a reporting unit is not needed. If a quantitative analysis is required and the unit’s carrying amount exceeds its fair value, then the second step is performed to measure the amount of potential impairment. The Company’s annual goodwill impairment analysis in 2018 did not result in an impairment charge based on the qualitative assessment using the above-mentioned considered factors for potential goodwill impairment.
ASC 740,
Income Taxes
, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. This accounting guidance also prescribes recognition thresholds and measurement attributes for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position or its results of operations and its deferred tax liabilities related to the unrealized net gains on investments. See Note 3 of Notes to Consolidated Financial Statements for further discussion.
ASC 280-10,
Segment Reporting
, defines an operating segment as a component of a public entity that has discrete financial information that is evaluated regularly by the Company’s Chief Executive Officer to decide how to allocate resources and to assess performance. In accordance with ASC 280-10, the Company has two reportable business segments which are: (i) The Traditional Business and (ii) Journal Technologies.
The above discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included in this report.