DJCO Daily Journal Corp

During the six months ended March 31, 2020, Daily Journal Corporation (NASDAQ:DJCO) had consolidated revenues of $24,033,000 as compared with $21,140,000 in the prior year period.  This increase of $2,893,000 was primarily from (i) Journal Technologies’ increased license and maintenance fees of $1,285,000, consulting fees of $978,000 and public service fees of $770,000, and (ii) the Traditional Business’ increases of legal notice advertising and service fee net revenues of $215,000 and government notice advertising and service fee net revenues of $38,000, partially offset by reductions in the Traditional Business’ display advertising net revenues of $252,000 (including conferences), classified advertising net revenues of $40,000, trustee sale notice advertising net revenues of $57,000 and circulation revenues of $13,000.

The Traditional Business had pretax income of $115,000, representing a $304,000 increase from a pretax loss of $189,000 in the prior year period.  Journal Technologies’ pretax loss decreased by $2,274,000 to $2,774,000 from $5,048,000. 

The Company believes that the Coronavirus pandemic has had, and will continue to have, a significant impact on the Company’s business.  For the six months ended March 31, 2020, the Company experienced a material negative impact on its financial results primarily because of the recording of the unrealized losses on investments of $57,680,000 for its marketable securities as the stock market plunged. These investments generated approximately $2,977,000 in dividends income during such period. In the future, dividends income from the Company’s portfolio may be reduced.  At March 31, 2020, the Company held marketable securities valued at $136,901,000, including net unrealized gains of $83,012,000, and accrued a deferred tax liability of $21,816,000 for estimated income taxes due only upon the sales of the net appreciated securities.  From an operating perspective, the Company believes that the Coronavirus pandemic is likely to impact both of its businesses because of, among other things, the unprecedented closure or scaling back of operations of courts and other governmental agencies that are the customers of Journal Technologies, and fundamental changes in the way the advertisers and subscribers of the Traditional Business conduct operations.

For the six months ended March 31, 2020, the Company recorded an income tax benefit of $15,580,000 on a pretax loss of $57,696,000.  This was the net result of applying the effective tax rate anticipated for fiscal 2020 to the pretax loss, before the unrealized losses on investments, for the six months ended March 31, 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 (see below) and (ii) $15,425,000 for the unrealized losses on investments during the six months ended March 31, 2020.  The effective tax rate for the six months ended March 31, 2020 was 27%, after including the tax benefits from the CARES Act and the unrealized losses on investments.

The CARES Act, which was signed into law on March 27, 2020, contains two federal tax provisions beneficial to the Company.  One provision provides that net operating losses arising in tax years beginning in 2018, that were previously only available to be carried forward, can now be carried back to the five previous years.  In addition, any alternative minimum tax credits carried forward from prior years can be claimed as a refund in years beginning in 2018.  Consequently, the Company recorded a tax benefit resulting from carrying back a portion of the net operating loss generated in fiscal 2019 to fiscal 2014.  The Company anticipates receiving a refund for all taxes and alternative minimum taxes paid in fiscal 2014.  The resulting tax benefit from carrying back the net operating loss is primarily attributable to the difference in the federal tax rates of 34% in fiscal 2014 and 21% in fiscal 2019.

For the six months ended March 31, 2019, the Company recorded an income tax benefit of $6,600,000 on a pretax loss of $23,115,000.   This was the net result of applying the effective tax rate anticipated for fiscal 2019 to the pretax loss for the six months ended March 31, 2019. The effective tax rate was greater than the statutory rate primarily due to state tax benefits. 

For risk factors associated with the Company’s businesses, please see “Item 1A – Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2019, as well as the information relating to the Coronavirus pandemic contained in “Item 1A – Risk Factors” on the Company’s Form 10-Q for the six-month period ended March 31, 2020.

                                         **********

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