What changed in this filing

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Item 1. Financial Statements

2024-05-15 compared with 2024-02-15 · 105 added, 43 removed, 222 unchanged (40% of the section changed)

7 unchanged sentences

Marketable securities at fair value -- common stocks

Accounts receivable, less allowance for doubtful accounts of $ 250,000 at December 31, 2023 and September 30, 2023

Income tax receivable

Accounts receivable, less allowance for doubtful accounts of $ 250,000 at March 31, 2024 and September 30, 2023

Prepaid expenses and other current assets

28 unchanged sentences

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

1,805,053 shares issued, including 428,027 treasury shares, at December 31, 2023 and September 30, 2023

1,805,053 shares issued, including 428,027 treasury shares, at March 31, 2024 and September 30, 2023

Additional paid-in capital

4 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

ended December 31

ended March 31

Advertising service fees and other

29 unchanged sentences

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

ended March 31

Advertising service fees and other

Licensing and maintenance fees

Consulting fees

Other public service fees

Costs and expenses

Salaries and employee benefits

Decrease to the long-term supplemental compensation accrual

Agency commissions

Outside services

Postage and delivery expenses

Newsprint and printing expenses

Depreciation and amortization

Equipment maintenance and software

Credit card merchant discount fees

Rent expenses

Accounting and legal fees

Other general and administrative expenses

Income from operations

Other income (expense)

Dividends and interest income

Realized gains on sales of marketable securities

Net unrealized gains on marketable securities

Interest expense on margin loans and others

Interest expense on note payable collateralized by real estate

Income before income taxes

Income tax provisions

Weighted average number of common shares outstanding - basic and diluted

Basic and diluted net income (loss) per share

Comprehensive income

See accompanying Notes to Consolidated Financial Statements.

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

3 unchanged sentences

Balance at December 31, 2022

Balance at March 31, 2023

Balance at September 30, 2023

Balance at December 31, 2023

Balance at March 31, 2024

See accompanying Notes to Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

ended December 31

ended March 31

Cash flows from operating activities

3 unchanged sentences

Realized gains on sales of marketable securities

Stock dividends

Deferred income taxes

Changes in operating assets and liabilities

(Increase) decrease in current assets

Changes in operating assets and liabilities (Increase) decrease in current assets

Accounts receivable, net

13 unchanged sentences

Purchases of property, plant and equipment

Net cash used in investing activities

Net cash provided from (used in) investing activities

Cash flows from financing activities

24 unchanged sentences

Note 2 - Basis of Presentation

In the opinion of the Company, the accompanying interim unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of its financial position as of December 31, 2023, its results of operations for the three-month periods ended December 31, 2023 and 2022, its consolidated statements of shareholders’ equity for the three-month periods ended December 31, 2023 and 2022 and cash flows for the three-month periods ended December 31, 2023 and 2022.

The results of operations for the three months ended December 31, 2023 are not necessarily indicative of the results to be expected for the full year.

In the opinion of the Company, the accompanying interim unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of its financial position as of March 31, 2024, its results of operations for the three- and six-month periods ended March 31, 2024 and 2023, its consolidated statements of shareholders’ equity for the three- and six-month periods ended March 31, 2024 and 2023 and cash flows for the six-month periods ended March 31, 2024 and 2023.

The results of operations for the six months ended March 31, 2034 are not necessarily indicative of the results to be expected for the full year.

The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.

3 unchanged sentences

Note 3 - Accounting Standards Adopted in Fiscal 2024

On October 1, 2023, the Company adopted Current Expected Credit Losses, a credit loss accounting standard (model) issued by the Financial Accounting Stands Board, requiring financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis.

On October 1, 2023, the Company adopted Current Expected Credit Losses, a credit loss accounting standard (model) issued by the Financial Accounting Stands Board, requiring financial assets measured at amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis.

The standard eliminates the threshold for initial recognition in current U.S.

3 unchanged sentences

Note 4 – Right-of-Use (ROU) Asset

At December 31, 2023, the Company had a ROU asset and lease liability of approximately $ 82,000 for its operating office and equipment leases, including approximately $ 31,000 beyond one year.

At March 31, 2024, the Company had a ROU asset and lease liability of approximately $ 69,000 for its operating office and equipment leases, including approximately $ 21,000 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.

11 unchanged sentences

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 e-file cases and pay traffic citations and other fees.

The adoption of ASC 606 also requires the capitalization of certain costs of obtaining contracts, specifically sales commissions which are to be amortized over the expected term of the contracts.

5 unchanged sentences

In June 2022, the Company received from the late 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 is subject to shareholders’ approval at the Company’s 2024 Annual Meeting.

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 been approved by the Board of Directors and shareholders, though no grants under the plan have yet been made.

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 at December 31, 2023.

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 at March 31, 2024.

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 1,377,026 for both the three-month periods ended December 31, 2023 and 2022.

The shares used in the calculation were 1,377,026 for both the three- and six-month periods ended March 31, 2024 and 2023.

Note 7 - Basic and Diluted Net Income Per Share

4 unchanged sentences

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 investments on a recurring basis pursuant to ASC 820, Fair Value Measurement .

As of December 31, 2023 and September 30, 2023, there were net accumulated pretax unrealized gains of $ 152,406,000 and $ 137,716,000 , respectively, recorded in the accompanying consolidated balance sheets.

As of March 31, 2024 and September 30, 2023, there were net accumulated pretax unrealized gains of $ 157,909,000 and $ 137,716,000 , respectively, recorded in the accompanying consolidated balance sheets.

Most of the accumulated pretax unrealized gains were in the common stocks of three U.S.

financial institutions and one foreign manufacturer.

In the three months ended December 31, 2023, the Company recorded and included in its net income the net unrealized gains on marketable securities of $ 14,690,000 , as compared with the net unrealized gains on marketable securities of $ 24,025,000 , in the prior year period.

During the six months ended March 31, 2024, the Company recorded and included in its net income the net unrealized gains on marketable securities of $ 20,193,000 , as compared with $ 32,669,000 , in the prior year period.

In March 2024, the Company sold part of its marketable securities for approximately $ 40,579,000 , realizing net gains of $ 14,261,000 .

The Company used these proceeds to further pay down the margin loan balance to $ 29,421,000 from $ 75,000,000 at September 30, 2023, aggregating a paydown of approximately $ 45,579,000 during the six months ended March 31, 2024.

(During last quarter, there was already a paydown of $5,000,000 to this loan by means of excess cash from operations.)

In December 2022, the Company sold part of its marketable securities for approximately $ 2,826,000 , realizing net gains of $ 422,000 , and borrowed an additional $ 6,011,000 from the margin loan account to purchase additional marketable securities with a total cost of approximately $ 10,001,000 .

(The Company repaid $ 11,000 in the subsequent quarter.) There was no purchase or sale of marketable securities during the three months ended December 31, 2023.

The Company repaid $ 11,000 subsequently.

In addition, the Company received stock dividends in March 2023 worth approximately $ 2,978,000 from one of the companies in which it holds marketable securities.

Our long-serving director and former chairman, Charles T.

Munger, had managed the Company’s marketable securities portfolio since the original purchases were made with the Company’s excess cash in 2009 as an alternative to near-zero interest rate investments.

Following Mr.

Munger’s death in November 2023, the Company remains committed to using the portfolio as a source of strength in support of its operating businesses, and the Board is in the process of considering ways to ensure the prudent and effective management of these assets in the context of the current market and the needs of the businesses.

Investments in marketable securities as of December 31, 2023 and September 30, 2023 are summarized below.

Munger died in November 2023, and the Company remains committed to using the portfolio as a source of strength in support of its operating businesses, just as it has for the past 15 years.

The Board has been evaluating ways to ensure the prudent and effective management of these assets in the context of the current market and the needs of the businesses, and the recent sales of a portion of the portfolio and the concurrent paydown of the Company’s margin loan, each as described above, are reflective of that evaluation.

Investments in marketable securities as of March 31, 2024 and September 30, 2023 are summarized below.

Investment in Financial Instruments

December 31, 2023

March 31, 2024

September 30, 2023

Marketable securities

Common stocks

unrealized gains

Marketable securities Common stocks

Note 9 - Income Taxes

For the three months ended December 31, 2023, the Company recorded an income tax provision of $ 3,125,000 on the pretax income of $ 15,740,000 .

The income tax provision consisted of tax provisions of $ 3,765,000 on the unrealized gains on marketable securities, $ 30,000 on income from foreign operations, and $ 270,000 on income from US operations and dividend income, partially offset by a tax benefit of $ 120,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $ 820,000 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 three months ended December 31, 2023 was 19.9 %, after including the taxes on the unrealized gains on marketable securities.

For the three months ended December 31, 2022, the Company recorded an income tax provision of $ 6,100,000 on the pretax income of $ 23,927,000 .

The income tax provision consisted of a tax provision of $ 110,000 on the realized gains on marketable securities and $ 6,360,000 on the unrealized gains on marketable securities, partially offset by a tax benefit of $ 140,000 on loss from operations, $ 80,000 for the dividends received deduction and other permanent book and tax differences, and $ 150,000 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 three months ended December 31, 2022 was 25.49 %, after including the taxes on the realized and unrealized gains on marketable securities.

For the six months ended March 31, 2024, the Company recorded an income tax provision of $ 8,330,000 on the pretax income of $ 36,360,000 .

The income tax provision consisted of tax provisions of $ 3,660,000 on the realized gains on marketable securities, $ 5,180,000 on the unrealized gains on marketable securities, $ 40,000 on income from foreign operations, and $ 480,000 on income from US operations and dividend income, partially offset by a tax benefit of $ 210,000 for the dividends received deduction and other permanent book and tax differences, and a tax benefit of $ 820,000 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 six months ended March 31, 2024 was 22.9 %, after including the taxes on the realized and unrealized gains on marketable securities.

For the six months ended March 31, 2023, the Company recorded an income tax provision of $ 9,935,000 on the pretax income of $ 37,195,000 .

The income tax provision consisted of a tax provision of $ 110,000 on the realized gains on marketable securities and $ 8,770,000 on the unrealized gains on marketable securities, a tax provision of $ 1,005,000 on income from operations, including dividend income, and a tax provision of $ 210,000 for the effect of a change in state apportionment on the beginning of the year’s deferred tax liability, partially offset by a tax benefit of $ 160,000 for the dividends received deduction and other permanent book and tax differences.

Consequently, the overall effective tax rate for the six months ended March 31, 2023 was 26.7 %, after including the taxes on the realized and unrealized gains on 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 2021 with regard to federal income taxes and fiscal 2020 for state income taxes.

1 unchanged sentence

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.

There also have been subsequent net borrowings of $ 40.5 million to purchase additional marketable securities bringing the margin loan balance to $ 70 million as of December 31, 2023.

At March 31, 2024, the margin loan balance was approximately $ 29.4 million.

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 December 31, 2023 was 6 %.

The interest rate as of March 31, 2024 was 6 %.

These investment margin account borrowings do not mature.

3 unchanged sentences

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 $ 1.24 million as of December 31, 2023.

This real estate loan had a balance of approximately $ 1.2 million as of March 31, 2024.

Each monthly installment payment is approximately $ 16,700 .

4 unchanged sentences

Effective January 1, 2023, the Company began sponsoring a 401(k) retirement plan and a 409(A) non-qualified deferred compensation plan for its employees.

As of December 31, 2023, there were deferred compensation liabilities of approximately $ 387,000 , of which $ 379,000 were held under a trust account for the 409(A) plan.

As of March 31, 2024, there were deferred compensation liabilities of approximately $ 509,000 , which were held under a 409(A) plan trust account secured by a company-owned life insurance policy.

Note 11 - Contingencies

7 unchanged sentences

Overall Financial Results (000)

For the three months ended December 31, 2023 and 2022

For the six months ended March 31

Reportable Segments

10 unchanged sentences

Dividends and interest income

Interest expenses on note payable collateralized by real estate and other

Interest expense on margin loans

Interest expenses on note payable collateralized by real estate

Interest expense on margin loans and others

Gains on sales of marketable securities, net

Net unrealized gains (losses) on marketable securities

Net unrealized gains on marketable securities

Pretax income (loss)

2 unchanged sentences

Capital expenditures

During the three months ended December 31, 2023, the Traditional Business had total operating revenues of $ 3,887,000 with $ 2,792,000 recognized after services were provided and $ 1,095,000 recognized ratably over the publication subscription terms, as compared with total operating revenues of $ 3,787,000 with $ 2,689,000 recognized after services were provided and $ 1,098,000 recognized ratably over the publication subscription terms in the prior year period.

Total operating revenues for the Company’s software business were $ 12,106,000 with $ 5,570,000 recognized upon completion of services and $ 6,536,000 recognized ratably over the subscription periods, as compared with total operating revenues of $ 8,514,000 with $ 4,121,000 recognized upon completion of services and $ 4,393,000 recognized ratably over the subscription periods in the prior year period.

Approximately 76 % of the Company’s revenues during the three-month period ended December 31, 2023 were derived from Journal Technologies, as compared with 69 % in the prior year period.

In addition, the Company’s revenues during the quarter were primarily from the United States with approximately 21 % from foreign countries during the three-months ended December 31, 2023.

Overall Financial Results (000)

For the three months ended March 31

Reportable Segments

Advertising service fees and other

Licensing and maintenance fees

Consulting fees

Other public service fees

Total operating revenues

Operating expenses

Salaries and employee benefits

Decrease to the long-term supplemental compensation accrual

Total operating expenses

Income from operations

Dividends and interest income

Interest expenses on note payable collateralized by real estate

Interest expense on margin loans and other

Gains on sales of marketable securities

Net unrealized gains on marketable securities

Pretax income

Income tax (expense) benefit

Capital expenditures

During the six months ended March 31, 2024, the Traditional Business had total operating revenues of $ 7,999,000 with $ 5,805,000 recognized after services were provided and $ 2,194,000 recognized ratably over the subscription terms, as compared with total operating revenues of $ 7,877,000 with $ 5,671,000 recognized after services were provided and $ 2,206,000 recognized ratably over the subscription terms in the prior fiscal year period.

Total operating revenues for the Company’s software business were $ 24,565,000 with $ 11,384,000 recognized upon completion of services and $ 13,181,000 recognized ratably over the subscription periods, as compared with total operating revenues of $ 20,578,000 with $ 10,687,000 recognized upon completion of services and $ 9,891,000 recognized ratably over the subscription periods in the prior fiscal year period.

During the three months ended March 31, 2024, the Traditional Business had total operating revenues of $ 4,112,000 with $ 3,013,000 recognized after services were provided and $ 1,099,000 recognized ratably over the subscription terms, as compared with total operating revenues of $ 4,090,000 with $ 2,982,000 recognized after services were provided and $ 1,108,000 recognized ratably over the subscription terms in the prior fiscal year period.

Total operating revenues for the Company’s software business were $ 12,459,000 with $ 5,814,000 recognized upon completion of services and $ 6,645,000 recognized ratably over the subscription periods, as compared with total operating revenues of $ 12,064,000 with $ 6,566,000 recognized upon completion of services and $ 5,498,000 recognized ratably over the subscription periods in the prior fiscal year period.

Approximately 75 % of the Company’s revenues were derived from Journal Technologies during both the three-month periods ended March 31, 2024 and 2023.

In addition, the Company’s revenues have been primarily from the United States with approximately 14 % from foreign countries during the six-months ended March 31, 2023.

Journal Technologies’ revenues are primarily from governmental agencies.

2 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-Q

Item 1. Financial Statements