Daily Journal Corporation Announces Financial Results for the Nine Months ended June 30, 2021

During the nine months ended June 30, 2021, Daily Journal Corporation (NASDAQ:DJCO) had consolidated revenues of $37,952,000 as compared with $36,907,000 in the prior year period. This increase of $1,045,000 was primarily from increases in (i) Journal Technologies’ license and maintenance fees of $744,000 and public service fees of $841,000 and (ii) the Traditional Business’ legal notice advertising net revenues of $471,000 and government notice advertising net revenues of $173,000, partially offset by reductions in (i) Journal Technologies’ consulting fees of $416,000 and (ii) the Traditional Business’ display advertising net revenues of $44,000, classified advertising net revenues of $31,000, trustee sale notice advertising net revenues of $335,000 and circulation revenues of $399,000.

The Traditional Business’ pretax income increased by $194,000 to $70,000 from a pretax loss of $124,000 in the prior fiscal year period. Journal Technologies’ business segment pretax income increased by $4,143,000 to $2,244,000 from a pretax loss of $1,899,000 in the prior fiscal year period. During the nine months ended June 30, 2021, the Company sold some of its marketable securities for $20,002,000, realizing gains on the sales of those marketable securities of $18,478,000, and simultaneously reinvested the proceeds in marketable securities of a different company. In addition, there were increases in net unrealized gains on marketable securities of $172,945,000 to $131,754,000 from net unrealized losses of $41,191,000 in the prior fiscal year period. These investments generated approximately $2,063,000 in dividends income for the nine months ended June 30, 2021. Dividends from the Company’s portfolio have declined and are expected to remain lower than in the past because the investments are largely concentrated in U.S. financial institutions, and some banks have reduced their dividends. During the nine months ended June 30, 2021, consolidated pretax income was $154,434,000, as compared to a pretax loss of $39,102,000 in the prior fiscal year period. There was consolidated net income of $114,319,000 ($82.80 per share) for the nine months ended June 30, 2021, as compared with a net loss of $27,842,000 (-$20.16 per share) in the prior fiscal year period.

The Company believes that the Coronavirus pandemic (“COVID-19”) has had, and, with the recent rise of Delta variant cases, will continue to have, a significant impact on the Company’s business operations. It is possible that governments may again take extreme actions in response to the pandemic and the Delta variant, such as the renewed closure, or scaling back of operations, of courts and other governmental agencies that are the customers of the Company. This might also include a fair degree of volatility in the value of the Company’s marketable securities. At June 30, 2021, the Company held marketable securities valued at $349,593,000, including net pretax unrealized gains of $269,347,000, and accrued a deferred tax liability of $70,275,000 for estimated income taxes due only upon the sales of the net appreciated securities.

For the nine months ended June 30, 2021, the Company recorded a provision for income taxes of $40,115,000 on pretax income of $154,434,000. This was the net result of applying the effective tax rate anticipated for fiscal 2021 to pretax income before the unrealized and realized gains on marketable securities for the nine months ended June 30, 2021. The effective rate of 21.32%, which was higher than the statutory rate of 21% primarily due to state taxes which were offset by the dividends received deduction, resulted in a tax provision of $896,000 on pretax income before the unrealized and realized gains on marketable securities. In addition, the Company recorded a tax provision of $34,405,000 on the unrealized gains on marketable securities, and a tax provision of $4,821,000 on the realized gains on marketable securities, both of which were offset by a tax benefit of $7,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability. Consequently, the overall effective tax rate for the nine months ended June 30, 2021 was 26%, after including the taxes on the realized and unrealized gains on marketable securities.

For the nine months ended June 30, 2020, the Company recorded an income tax benefit of $11,260,000 on a pretax loss of $39,102,000. This was the net result of applying the effective tax rate anticipated for fiscal 2020 to the pretax loss, before the unrealized losses on marketable securities, for the nine months ended June 30, 2020. The effective tax rate was more than the statutory rate primarily due to the dividends received deduction, which increased the taxable loss, and state tax benefits. In addition, the Company recorded tax benefits of (i) $187,000 resulting from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and (ii) $11,166,000 for the unrealized losses on investments during the nine months ended June 30, 2020. The effective tax rate for the nine months ended June 30, 2020 was 29%, after including the tax benefits from the CARES Act and the unrealized losses on investments.

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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.

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