Daily Journal Corporation Announces Financial Results for the Three Months ended December 31, 2018

Wall Street Business News

LOS ANGELES, Feb. 11, 2019 (GLOBE NEWSWIRE) — 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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