What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-12-19 compared with 2021-12-17 · 83 added, 68 removed, 547 unchanged (22% of the section changed)

3 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Daily Journal Corporation (the Company) as of September 30, 2021 and 2020, the related consolidated statements of comprehensive income, shareholders’

We have audited the accompanying consolidated balance sheets of Daily Journal Corporation (the Company) as of September 30, 2022 and 2021, the related consolidated statements of comprehensive (loss) income, shareholders’

equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

14 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

5 unchanged sentences

Arrangements with customers can involve multiple performance obligations and rights.

 The Company recognized $21.04 million of licensing and maintenance fees for the year ended September 30, 2021.

The Company recognized $19.2 million of licensing and maintenance fees for the year ended September 30, 2022.

We identified the evaluation of the Company’s analysis of terms and conditions in significant software and license contracts with customers and their effect on revenue recognition as a critical audit matter.

54 unchanged sentences

215,000  

Deferred income taxes

$ 319,111,000  

$ 382,556,000  

$ 390,577,000  

$ 238,575,000  

LIABILITIES AND SHAREHOLDERS' EQUITY

46 unchanged sentences

Common stock, $.01 par value, 5,000,000 shares authorized;

1,805,053 shares issued, including 424,307 treasury shares, at September 30, 2021 and September 30, 2020

1,805,053 shares issued, including 428,027 and 424,307 treasury shares, at September 30, 2022 and September 30, 2021, respectively

14,000  

13 unchanged sentences

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Advertising, net

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Advertising service fees and other

4 unchanged sentences

Salaries and employee benefits

Increase to the long-term supplemental compensation accrual

Agency commissions

Outside services

7 unchanged sentences

Other general and administrative expenses

Income (loss) from operations

Income from operations

Other income (expenses)

Dividends and interest income

Net unrealized gains (losses) on investments

Net unrealized (losses) gains on investments

( 123,401,000

Interest expense on note payable collateralized by real estate and others

Interest expense on margin loans

Gains on land sale

Gains on sales of marketable securities, net

Income before taxes

Provision for income taxes

(Loss) income before taxes

( 102,549,000

Benefit (provision) for income taxes

Net (loss) income

Weighted average number of common shares outstanding –

basic and diluted

Basic and diluted net income per share

Basic and diluted net (loss) income per share

See accompanying Notes to Consolidated Financial Statements

5 unchanged sentences

Balance at September 30, 2021

Receipt of donated treasury stock

Balance at September 30, 2022

3 unchanged sentences

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities

Net (loss) income

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities

Depreciation and amortization

Gains on land sale

Gains on sales of marketable securities, net

Deferred income taxes

Unrealized (gains) losses on marketable securities

Unrealized losses (gains) on marketable securities

( 106,499,000

11 unchanged sentences

Deferred maintenance agreements and others

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities

1 unchanged sentence

Purchases of marketable securities

( 117,678,000

Purchases of property, plant and equipment, net

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities

2 unchanged sentences

Payment of real estate loan principal

Net cash provided by (used in) financing activities

(Decrease) increase in cash and cash equivalents and restricted cash

Net cash provided by financing activities

Increase (decrease) in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash

1 unchanged sentence

Interest paid during year

Income taxes paid (refunded) during year

Income taxes paid during year

See accompanying Notes to Consolidated Financial Statements

4 unchanged sentences

It also serves as a newspaper representative specializing in public notice advertising.

This is sometimes referred to as the Company’s “Traditional Business”.

Journal Technologies, Inc.

1 unchanged sentence

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 the public, including efiling and a website to pay traffic citations and fees online.

These products are licensed in 42 states and internationally.

These products are licensed in approximately 30 states and internationally.

In August 2022, the Company established a new wholly-owned subsidiary, Journal Technologies (Canada) Inc., in Victoria BC, Canada.

Essentially all of the Company’s U.S.

15 unchanged sentences

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Restricted Cash:

The Company considers cash to be restricted when withdrawal or general use is legally restricted.

9 unchanged sentences

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 unrealized gains (losses) through net income (loss).

Accordingly, the Company’s net income of $ 112,900,000 for fiscal 2021, included net unrealized gains on marketable securities of $ 106,499,000 .

In fiscal 2020, the Company’s net income of $ 4,041,000 included net unrealized losses on marketable securities of $ 3,099,000 .

Accordingly, the Company’s net loss of $ 75,624,000 for fiscal 2022, included net unrealized losses on marketable securities of $ 123,401,000 .

In fiscal 2021, the Company’s net income of $ 112,900,000 included net unrealized gains on marketable securities of $ 106,499,000 .

The Company uses quoted prices in active markets for identical assets (consistent with the Level 1 definition in the fair value hierarchy) to measure the fair value of its marketable securities on a recurring basis pursuant to Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosures .

6 unchanged sentences

because they are available for sale at any time.

During fiscal 2021, the Company sold part of its marketable securities for approximately $ 45,033,000 , realizing a total gain of approximately $ 41,749,000 , and simultaneously bought some other companies’

marketable securities for an aggregated cost of approximately $ 64,990,000 .

During the prior fiscal year, the Company sold part of its marketable securities for $ 16,307,000 , realizing a net gain of approximately $ 4,193,000 .

During fiscal 2022, the Company sold part of its marketable securities for approximately $ 80,570,000 , realizing a total net gain of approximately $ 14,249,000 , and simultaneously bought some other companies’

marketable securities for an aggregated cost of approximately $ 117,678,000 with additional borrowings of $ 43,014,000 from the margin loan account.

During the prior fiscal year, the Company sold part of its marketable securities for approximately $ 45,033,000 , realizing a total gain of approximately $ 41,749,000 , and simultaneously bought some other companies’

marketable securities for an aggregated cost of approximately $ 64,990,000 with additional borrowings of $ 17,000,000 from the margin loan account.

Investment in Financial Instruments

9 unchanged sentences

$ 244,093,000  

As of September 30, 2021, there existed unrealized losses related to one of the newly acquired marketable securities.

Inventories, comprised of newsprint and paper, are stated at cost, on a first -in, first -out basis, which does not exceed current net realizable value.

25 unchanged sentences

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.

Advertising revenues are recognized when advertisements are published.

Journal Technologies contracts may include several products and services, which are generally distinct and include separate transaction pricing and performance obligations.

30 unchanged sentences

In fiscal 1987, the Company implemented a Management Incentive Plan (the “Incentive Plan”) that entitles a participant to participate in pretax earnings before adjustment for certain items of the Company for ten years.

During fiscal 2022, this plan was expanded to include the participation of all Journal Technologies employees.

Certificate interests entitled participants to receive 5.15 % and 4.96 % (amounting to $ 474,300 and $ 332,940 , respectively) of Daily Journal non-consolidated income before taxes, workers’

compensation, supplemental compensation and certain other items, 21.7 % and 12.33 % (amounting to $ 455,700 and $ 255,300 , respectively) for Journal Technologies and 11.69 % and 12.24 % (amounting to $ 1,295,540 and $ 1,049,750 , respectively) for Daily Journal consolidated in fiscal 2022 and 2021, respectively.

(During fiscal 2021, three employees were transferred from the “Daily Journal non-consolidated”

program to the “Daily Journal consolidated”

program.) The Company accrued $ 3,280,000 and $ 1,445,000 as of September 30, 2021 and 2020, respectively, for the Plan’s future commitment for those who will still have Certificates at the age of 65.

This future commitment included an increase in the accrual in fiscal 2021 of $ 1,835,000 or $ 1.33 per outstanding share on an adjusted pretax basis as compared with an increase in fiscal 2020 of $ 1,215,000 or $.88 per outstanding share, in each case due to increased estimated future pretax income.

The Company accrued $ 4,525,000 and $ 3,280,000 as of September 30, 2022 and 2021, respectively, for the Plan’s future commitment for those who will still have Certificates at the age of 65.

This future commitment included an increase in the accrual in fiscal 2022 of $ 1,245,000 or $.

90 per outstanding share on an adjusted pretax basis as compared with an increase in fiscal 2021 of $ 1,835,000 or $ 1.33 per outstanding share, in each case due to increased estimated future pretax income.

The estimated Incentive Plan’s future commitment is calculated based on an average of the past year and the current year pretax earnings before certain items, discounted to the present value at 6 % because each granted Certificate will expire over its remaining life term of up to 10 years.

7 unchanged sentences

In addition, previously recognized benefits from tax positions that no longer meet the new criteria would be derecognized.

Net income per common share:

The net income per common share is based on the weighted average number of shares outstanding during each year.

The shares used in the calculation were 1,380,746 for fiscal 2021 and 2020.

Treasury stock and net (loss) income per common share:

In June 2022, the Company received from Director Charles T.

Munger 3,720 shares of Daily Journal common stock as his gracious personal gift (worth approximately $ 1 million on the date of the gift) for the purpose of establishing a new senior management equity incentive plan, which has yet to be established.

These donated shares were considered treasury stock, and the Company accounted for them using the par method which resulted in an immaterial effected amount on Treasury Stock and Additional Paid-in Capital.

In addition, the number of outstanding shares of the Company was reduced by these 3,720 shares to reflect the actual number of outstanding shares of 1,377,026 as of September, 2022.

The net (loss) income per common share is based on the weighted average number of shares outstanding during each year.

The shares used in the calculation were 1,379,655 and 1,380,746 for fiscal 2022 and 2021, respectively.

The Company does not have any common stock equivalents, and therefore basic and diluted net income per share is the same.

5 unchanged sentences

At September 30, 2022, the Company recorded a ROU asset and lease liability of approximately $ 104,000 for its operating office and equipment leases, including approximately $ 22,000 beyond one year. 

Operating office and equipment leases are included in operating lease ROU assets, current accrued liabilities and long-term accrued liabilities in the Company’s accompanying Consolidated Balance Sheets. 

(In the prior fiscal year, there were ROU asset and lease liability of $ 215,000 with $ 103,000 beyond one year.) Operating office and equipment leases are included in operating lease ROU assets, current accrued liabilities and long-term accrued liabilities in the Company’s accompanying Consolidated Balance Sheets. 

Accrued Liabilities

2 unchanged sentences

No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s consolidated financial statements.

The provision (benefit) from income taxes consists of the following:

The (benefit) provision from income taxes consists of the following:

$ 2,688,000  

$ ( 420,000 )

$ 5,420,000  

8 unchanged sentences

( 30,821,000 )  

31,895,000  

$ ( 26,925,000 )  

$ 40,150,000  

The difference between the statutory federal income tax rate and the Company’s effective rate is summarized below:

3 unchanged sentences

Effect of state rate change on beginning balance of deferred tax liabilities

Business meals/gifts/other permanent differences

( 0.7 )  

Dividends received deduction

( 0.1 )  

Revenue recognized for book but not tax

Foreign tax credits

CARES Act benefits

Effective tax rate

35 unchanged sentences

$ ( 56,094,000 )

During fiscal 2022, the Company recorded an income tax benefit of $ 26,925,000 on the pretax loss of $ 102,549,000 .  

The income tax benefit consisted of a tax benefit of $ 32,840,000 on the unrealized losses on marketable securities and a benefit of $ 340,000 for the dividends received deduction and other permanent book and tax differences, offset by tax provisions of $ 3,790,000 on the realized gains on marketable securities, $ 1,735,000 on income from operations, and $ 730,000 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 fiscal 2022 was 26.3 %, after including the taxes on the realized gains and unrealized losses on marketable securities.

For fiscal 2021, the Company recorded a provision for income taxes of $ 40,150,000 on pretax income of $ 153,050,000 .  

The effective rate of 26.2 % was higher than the statutory rate of 21 % primarily due to the recording of (i) state taxes, which were offset by the dividends received deduction, resulting in a tax provision of $ 1,260,000 on pretax income before the unrealized and realized gains on marketable securities, (ii) a tax provision of $ 27,938,000 on the unrealized gains on marketable securities and (iii) a tax provision of $ 10,952,000 on the realized gains on marketable securities.  

For fiscal 2020, the Company recorded an income tax provision of $ 185,000 on pretax income of $ 4,226,000 .  The effective tax rate was less than the statutory rate primarily due to the DRD, a benefit resulting from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and net state tax benefits.   The effective tax rate for fiscal 2020 was 4.4 %, after including the DRD, the tax benefits from the CARES Act and state taxes.

The CARES Act, which was signed into law on March 27, 2020, contained two federal tax provisions beneficial to the Company:

(i) net operating losses arising in tax years beginning in 2018, that were previously only available to be carried forward, were allowed to be carried back to the five previous years, and (ii) any alternative minimum tax credits carried forward from prior years could be claimed as a refund in years beginning in 2018.

Consequently, the Company recorded a tax benefit, in fiscal 2020, resulting from carrying back a portion of the net operating loss generated in fiscal 2019 to fiscal 2014.

The Company received refunds for all taxes and alternative minimum taxes paid in fiscal 2014.

The tax benefit of $ 187,000 resulting from carrying back the net operating loss was primarily attributable to the difference in the federal tax rates of 34% in fiscal 2014 and 21% in fiscal 2019.

During fiscal 2020, the Company recorded net unrealized losses on marketable securities of $ 3,099,000 .

An income tax benefit of $ 1,371,000 resulting from these losses was recorded as a temporary difference in deferred income taxes.

The Company also recorded a net gain of $ 4,193,000 on the sales of marketable securities.

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 2019 with regard to federal income taxes and fiscal 2018 for state income taxes. 

The Company is utilizing all of its federal and certain state net operating losses in fiscal 2021.

* * * * * * * * * * * *

During fiscal 2021, the Company utilized all of its federal and certain state net operating losses (NOL).

California has suspended the use of NOLs for fiscal years beginning in 2020, 2021 and 2022.

11 unchanged sentences

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.

In addition, there were subsequent borrowings of $ 45.5 million to purchase additional marketable securities bringing the margin loan balance up to $ 75 million as of September 30, 2022.

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, 2021 was .75%.

The interest rate as of September 30, 2022 was 3 %, and it may increase in the future, particularly if the Federal Reserve continues to increase interest rates to help combat inflation.

These investment margin account borrowings do not mature.

In November 2015, the Company purchased a 30,700 square foot office building constructed in 1998 on about 3.6 acres in Logan, Utah that had been previously leased by Journal Technologies.

In November 2015, the Company purchased a 30,700 square foot office building constructed in 1998 on about 3.6 acres in Logan, Utah that had been previously leased for Journal Technologies.

The Company paid $ 1.24 million and financed the balance with a real estate bank loan of $ 2.26 million which had a fixed interest rate of 4.66 %.

This loan is secured by the Logan facility and can be paid off at any time without prepayment penalty.

In October 2020, the Company executed an amendment to lower the interest rate of this loan to a fixed rate of 3.33 % for the remaining of its 10 years.

In October 2020, the Company executed an amendment to lower the interest rate of this loan to a fixed rate of 3.33 % for the remaining 10 years.

This real estate loan had a balance of approximately $ 1.43 million as of September 30, 2022.

Each monthly installment payment is about $ 16,700 .

Each monthly installment payment is approximately $ 16,600 .

In April 2022, the Company sold approximately 17,564 square feet of the land along the front of its Logan building to the City of Logan for approximately $ 381,000 in connection with the City of Logan’s street widening project.

(In October 2022, the Company again amended this real estate loan contract as the bank transferred its index to Secured Overnight Financing Rate from London Interbank Offered Rate which was ceased by the Federal Reserve and the Alternative Reference Rates Committee in the United States.

The term of the loan, including the interest rate and the balance, remains unchanged.)

The Company also owns its facilities in Los Angeles and leases space for its other offices under operating leases which expire at various dates through October 2023.

15 unchanged sentences

143,000  

225,000  

Long-term accrued liabilities*

20 unchanged sentences

The Company’s reportable segments are:

(i) the Traditional Business and (ii) Journal Technologies.

(i) the Traditional Business and (ii) Journal Technologies which includes Journal Technologies, Inc.

and Journal Technologies (Canada) Inc.

(In August 2022, the Company established a new wholly-owned subsidiary, Journal Technologies (Canada) Inc., in Victoria BC, Canada.

Except for a nominal founding cost of approximately $ 4,000 , there were no business activities for this new Canadian company during fiscal 2022.

) All inter-segment transactions were eliminated.

14 unchanged sentences

Consulting fees

11,865  

Other public service fees

12 unchanged sentences

34,230  

36,065  

37,802  

Increase to the long-term Supplemental compensation accrual

13,840  

7 unchanged sentences

47,773  

Income (loss) from operations

( 512 )  

( 771 )  

Income from operations

Dividends and interest income

Gains on sale of land

Interest expenses on note payable collateralized by real estate and other

9 unchanged sentences

41,749  

Net unrealized gains (losses) on marketable securities

14,249  

41,749  

Net unrealized (losses) gains on marketable securities

( 123,401 )  

106,499  

( 123,401 )  

106,499  

Pretax income (loss)

9 unchanged sentences

27,315  

Net income (loss)

( 39,610 )  

26,925  

Net income (loss)

$ 1,082  

11 unchanged sentences

$ 319,111  

$ 382,556  

Capital expenditures

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data