During the three months ended December 31, 2018, Daily Journal
Corporation (NASDAQ:DJCO) had consolidated revenues of $10,428,000
as compared with $10,252,000 in the prior year period. This
increase of $176,000 was primarily from (i) Journal Technologies’
increased license and maintenance fees of $440,000 and public
service fees of $72,000 and (ii) the Traditional Business’
increased government notices and agency commission revenues of
$92,000, partially offset by a reduction in Journal Technologies’
consulting fees of $454,000 due to fewer go-lives.
The Traditional Business’ pretax loss decreased
by $225,000 to $32,000 from $257,000. Journal Technologies’
pretax loss also decreased by $700,000 to $2,512,000 from
$3,212,000, after including the amortization costs of intangible
assets of $0 and $1,062,000 for the three months ended December 31,
2018 and 2017, respectively. This decrease in amortization
expenses was partially offset by increased Journal Technologies’
personnel costs.
On October 1, 2018, the Company adopted
Accounting Standards Update (“ASU”) No. 2016-01, Financial
Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities.
This ASU requires an entity that holds financial assets or owes
financial liabilities to, among other things, measure equity
investments at fair value and recognize net unrealized gains
(losses) through net income (loss). Accordingly, the
Company’s net loss of $21,533,000 for the three-month period ended
December 31, 2018, included net unrealized losses on investments of
$28,640,000. For the prior year’s period, the Company
recorded net unrealized gains for its available-for-sale marketable
securities in other comprehensive income.
The Company’s non-operating income, net of
expenses, decreased to a loss of $27,329,000 from income of
$1,334,000 primarily because of (i) a recording of the net
unrealized losses on investments of $28,640,000 pursuant to the
newly adopted accounting standard mentioned above, and (ii)
increases in the interest rates on the Company’s two acquisition
margin loans.
For the three months ended December 31, 2018,
the Company recorded an income tax benefit of $8,317,000 on a
pretax loss of $29,850,000. This was the net result of
applying the effective tax rate anticipated for fiscal 2019 to the
pretax loss for the three months ended December 31, 2018. The
effective tax rate was greater than the statutory rate primarily
due to state tax benefits.
During the prior fiscal year, the December 2017
Tax Cuts and Jobs Act reduced the maximum corporate income tax rate
from 35% to 21%. The impact to the Company’s financial
statements was as follows: (i) fiscal 2018 income tax expense
or benefit was calculated using a blended rate of 24.28% pursuant
to IRC Section 15, (ii) deferred tax expense included 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 related to items that were initially
recorded as accumulated other comprehensive income. This
revaluation of approximately $20 million was recorded as a
component of income tax expense or benefit in continuing
operations. Consequently, on a pretax loss of $2,111,000
for the three months ended December 31, 2017, the Company recorded
an income tax benefit of $16,850,000. The income tax benefit
was also the result of applying the effective tax rate anticipated
for fiscal 2018 to the pretax loss for the three-month period ended
December 31, 2017. 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.
There was a consolidated net loss of $21,533,000
(-$15.60 per share) for the three months ended December 31, 2018
primarily because it included the net unrealized losses on
investments of $28,640,000. There was net income of
$14,739,000 ($10.67 per share) in the prior year period because of
the tax cuts.
At December 31, 2018, the Company held
marketable securities valued at $183,656,000, including net
unrealized gains of $129,767,000, and accrued a deferred tax
liability of $34,174,000 for estimated income taxes due only upon
the sales of the net appreciated securities.
Comprehensive income includes net (loss) income
and net unrealized (losses) gains on investments, net of taxes, as
summarized below:
Comprehensive (Loss) Income |
|
Three months ended December 31 |
|
|
2018 |
|
|
2017 |
|
|
|
Net
(loss) income |
$ |
(21,533,000 |
) |
$ |
14,739,000 |
Net
increase in unrealized appreciation of marketable
securities (net of taxes) |
|
--- |
|
|
12,118,000 |
|
$ |
(21,533,000 |
) |
$ |
26,857,000 |
Daily Journal Corporation publishes newspapers
and web sites covering California and Arizona, and produces several
specialized information services. Journal Technologies, Inc.
is a wholly-owned subsidiary and supplies case management software
systems and related products to courts and other justice
agencies.
This press release includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Certain statements contained in this press
release are “forward-looking” statements that involve risks and
uncertainties that may cause actual future events or results to
differ materially from those described in the forward-looking
statements. Words such as “expects,” “intends,”
“anticipates,” “should,” “believes,” “will,” “plans,” “estimates,”
“may,” variations of such words and similar expressions are
intended to identify such forward-looking statements. We
disclaim any intention or obligation to revise any forward-looking
statements whether as a result of new information, future
developments, or otherwise. Although we believe that the
expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will
prove to have been correct. Additional information concerning
factors that could cause actual results to differ materially from
those in the forward-looking statements is contained from time to
time in documents we file with the Securities and Exchange
Commission.
Contact: Tu
To
(213)
229-5436
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