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Note 2 - Summary of Significant Accounting Policies | 12 Months Ended
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Sep. 30, 2013
Accounting Policies [Abstract] |
Significant Accounting Policies [Text Block] | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The consolidated financial statements include the accounts of Daily Journal Corporation and The Technology Companies. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. Concentrations of Credit Risk: The Company extends unsecured credit to most of its advertising customers. The Company recognizes that extending credit and setting appropriate reserves for receivables is largely a subjective decision based on knowledge of the customer and the industry. Credit exposure also includes the amount of estimated unbilled sales. Credit limits, setting and maintaining credit standards, and managing the overall quality of the credit portfolio is largely centralized. The level of credit is influenced by the customer’s credit and payment history which the Company monitors when establishing a reserve. The Company maintains the reserve account for estimated losses resulting from the inability of its customers to make required payments. If the financial conditions of its customers were to deteriorate or its judgments about their abilities to pay are incorrect, additional allowances might be required and its results of operations could be materially affected. Cash equivalents: The Company considers all highly liquid investments, including U.S. Treasury Bills with a maturity of three months or less when purchased, to be cash equivalents. Fair Value of Financial Instruments:The carrying amounts of cash, accounts receivable and accounts payable approximate fair value because of their short maturities. In addition, the Company has investments in marketable securities, all categorized as “available-for-sale” and stated at fair market value, with the unrealized gains and losses, net of taxes, reported in “Accumulated other comprehensive income” in the accompanying consolidated balance sheets. 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 Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosures. At September 30, 2013, the aggregate fair market value of the Company’s marketable securities was $136,994,000. These investments had approximately $89,018,000 of unrealized gains before taxes of $34,610,000. Most of the unrealized gains were in the common stocks of three U.S. financial institutions. The bonds have a maturity date in 2039 and are classified as “Current assets” because they are available for sale. At September 30, 2012, the Company had U.S. Treasury Bills and marketable securities at fair market value of approximately $102,956,000, including approximately $52,464,000 of unrealized gains before taxes of $20,898,000. These net unrealized gains consist of gross unrealized gains of $54,653,000 and gross unrealized losses of $2,189,000. Investment in Financial Instruments
|  | September 30, 2013 |  |  | September 30, 2012 |
|  | Aggregate fair value |  |  | Amortized/Adjusted cost basis |  |  | Pretax unrealized gains |  |  | Aggregate fair value |  |  | Amortized/Adjusted cost basis |  |  | Pretax unrealized gains |
U.S. Treasury Bills |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 800,000 |  |  | $ | 800,000 |  |  | $ | — |
Marketable securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stocks |  |  | 129,699,000 |  |  |  | 43,042,000 |  |  |  | 86,657,000 |  |  |  | 94,061,000 |  |  |  | 44,761,000 |  |  |  | 49,300,000 |
Bonds |  |  | 7,295,000 |  |  |  | 4,934,000 |  |  |  | 2,361,000 |  |  |  | 8,095,000 |  |  |  | 4,931,000 |  |  |  | 3,164,000 |
Total |  | $ | 136,994,000 |  |  | $ | 47,976,000 |  |  | $ | 89,018,000 |  |  | $ | 102,956,000 |  |  | $ | 50,492,000 |  |  | $ | 52,464,000 |
The Company perform ed separate evaluations for impaired equity securities quarterly to determine if the unrealized losses were other-than-temporary. This evaluation considered a number of factors including, but not limited to, the length of time and extent to which the fair value ha d been less than cost, the financial condition and near term prospects of the issuer and the Company’s ability and intent to hold the securities until fair value recovers. The assessment of the ability and intent to hold these securities to recovery focuses on liquidity needs, asset/liability management and portfolio objectives. As of September 30, 2013, the Company concluded that the unrealized losses related to the marketable securities of one issuer were other-than-temporary and thus recorded impairment losses of $1,719,000 ($1,051,000 net of taxes). In fiscal 2012, there were similar other-than-temporary impairment losses of $2,855,000 ($1,720,000 net of taxes) related to the marketable securities of one other issuer. However, the recording of these impairment losses does not necessarily indicate that the loss in value of these securities is permanent. U.S. GAAP requires that the Company recognize other-than-temporary impairment losses in earnings rather than in accumulated comprehensive income when the security prices remain below cost for a period of time that may be deemed excessive even in instances where the Company possesses the ability and intent to hold the security. Acquisitions: On December 4, 2012 the Company purchased all of the outstanding stock of New Dawn for $14,000,000 in cash, and on September 13, 2013, the Company acquired substantially all of the operating assets and liabilities of ISD Corporation for approximately $16,000,000. Both acquisitions were accounted using the purchase method of accounting in accordance with ASC 805, Business Combinations. The Company incurred legal and tax fees of approximately $96,000 for the New Dawn acquisition and approximately $202,000 for the ISD acquisition. These costs were included in “Other general and administrative expenses” on the Company’s Consolidated Statements of Comprehensive Income. The Company acquired New Dawn and ISD to expand its case management software business and to broaden its customer base in key markets. The results of operations of New Dawn from December 5, 2012 through September 30, 2013 have been included in the Company’s Consolidated Financial Statements: revenues were $10,403,000, expenses were $10,625,000 (including intangible amortization expenses of $1,587,000), and its pretax loss was $222,000. The Company allocated the purchase price to tangible assets ($4,805,000 including cash of $2,122,000, prepaid and other assets of $1,881,000, accounts receivable of $660,000, and fixed assets of $142,000), identifiable intangible assets (purchased software and customer relationships of $9,500,000) and liabilities ($12,090,000 including accounts payable and accrued expenses of $2,334,000, deferred maintenance agreements of $2,200,000 and deferred installation contracts of $7,472,000) based on their fair values with the remaining balance in excess of the net assets allocated to goodwill ($11,700,000). Included in accrued expenses was $1,100,000 related to claims by customers for amounts previously collected on software installation projects. The identifiable intangible assets acquired for New Dawn were based on Level 3 fair value measurements using an income approach discounted to the present value. Goodwill, which is not amortized for financial statement purposes, is amortized over a 15-year period for tax purposes. Goodwill represents the expected synergies in expanding the Company’s software business. Identifiable intangible assets are being amortized on a straight-line basis over five years due to the short life cycle of technology that customer relationships depend on. The Company made certain year-end adjustments to the allocated fair values for goodwill, intangibles, prepaid and other assets and accrued expenses as a result of (i) adjusting the fair value of certain pre-acquisition contingencies based on additional information and (ii) determining the fair value of work-in-progress on software installation projects. The cumulative effect of these changes was to establish work-in-progress costs of approximately $1,760,000 included in prepaid and other assets, decrease accrued liabilities by $540,000 and reduce goodwill by $2,300,000. The results of operations of ISD for the month of September 2013 have been included in the Company’s Consolidated Financial Statements: revenues were $784,000, expenses were $694,000 (including intangible amortization expenses of $278,000), and its pretax income was $90,000. The Company allocated the purchase price to tangible assets ($4,410,000 including cash of $2,546,000; accounts receivable of $1,636,000; fixed assets of $141,000; and prepaid assets of $87,000), identifiable intangible assets (purchased software and customer relationships of $16,702,000) and liabilities ($5,112,000 including accounts payable and accrued expenses of $2,270,000 and deferred maintenance agreements of $2,842,000) based on their fair values. The Company’s allocation to identifiable intangibles is preliminary, pending the results of a third party valuation, and these assets are being amortized over five years due to the short life cycle of technology that customer relationships depend on. Deferred revenues on installation contracts primarily represent the fair value of advances from customers of the Technology Companies for software licenses and installation services in various stages of completion. After a customer’s acceptance of the completed project, the advances are generally no longer at risk of refund and are therefore considered earned. Deferred revenues on maintenance contracts represent prepayments of annual maintenance fees. Deferred installation contract costs represent the fair value of costs incurred by New Dawn for installation services in various stages of completion for which revenues have not yet been recognized. The Company has determined that it is impracticable to include the required supplemental pro forma information regarding the revenues and earnings of New Dawn and ISD as if the acquisitions had occurred on October 1, 2011 because neither New Dawn nor ISD previously maintained its books on an accrual basis in accordance with U.S. generally accepted accounting principles, and New Dawn’s and ISD’s owners further operated each of the entities as an S corporation. As a result, the Company is unable to produce meaningful pro forma numbers through the use of reasonable efforts. Had the acquisitions occurred on October 1, 2011, the Company would have recorded additional interest expenses of $133,000 and $221,000 in 2013 and 2012, respectively, related to the margin account borrowings incurred to fund the acquisitions and would have recorded additional intangible amortization of $3,370,000 and $5,235,000 in 2013 and 2012, respectively. Intangible Assets: At September 30, 2013, intangible assets were composed of New Dawn’s purchased software and customer relationship costs of $7,913,000 (net of the accumulated amortization expenses of $1,587,000) and ISD’s purchased software and customer relationship costs of $16,424,000 (net of accumulated amortization expenses of $278,000). These intangible assets are being amortized over five years based on their estimated useful lives. Future annual intangible amortization costs are estimated to be approximately $5,235,000 for fiscal 2014 through 2017 and $3,397,000 for fiscal 2018. Intangible amortization expense was $1,865,000 and $0 for fiscal 2013 and 2012, respectively. The Company accounts for goodwill in accordance with ASC 350, Intangibles — Goodwill and Other. Goodwill is not amortized for financial statement purposes but evaluated for impairment annually as of September 30, or whenever events or changes in circumstances indicate that the value may not be recoverable. Considered factors for potential goodwill impairment evaluation with respect to The Technology Companies include current year’s business profitability before intangible amortization, fluctuations of revenues, changes in the market place, the status of deferred installation contracts and new business, among other things. Prepaid and Other Assets: Included in other assets are costs incurred by New Dawn employees for installation services in various stages of completion for which revenues have not yet been recognized and are deferred to the extent considered recoverable. Inventories: Inventories, comprised of newsprint and paper, are stated at cost, on a first-in, first-out basis, which does not exceed current market value. Property, plant and equipment:Property, plant and equipment are carried on the basis of cost or fair value for assets acquired in business combinations. Depreciation of assets is provided in amounts sufficient to depreciate the cost of related assets over their estimated useful lives ranging from 3 – 39 years. At September 30, 2013, the estimated useful lives were (i) 5 – 39 years for building and improvements, (ii) 3 – 5 years for furniture, office equipment and software, and (iii) 3 – 10 years for machinery and equipment. Leasehold improvements are amortized over the term of the related leases or the useful life of the assets, whichever is shorter. Assets are depreciated using the straight-line method for financial statements and accelerated method for tax purposes. Depreciation and amortization expense was $2,441,000 and $503,000 for fiscal 2013 and 2012, respectively. Significant expenditures which extend the useful lives of existing assets are capitalized. Maintenance and repair costs are expensed as incurred. Gains or losses on dispositions of assets are reflected in current earnings. Impairment of Long-Lived Assets: The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the sum of the undiscounted future cash flows is less than the carrying amount of the asset, in which case a write-down is recorded to reduce the related asset to its estimated fair value. There were no such impairments identified during fiscal 2013 or 2012. The Technology Companies’ Software: The Company is continuing to update and upgrade its products. If these updates and upgrades are not successful, there will be a significant and adverse impact on the Company’s ability to maximize its existing investment in The Technology Companies, to service their existing customers, and to compete for new opportunities in the case management software business. These costs, which are largely personnel related, are expensed as incurred and will significantly impact earnings for the foreseeable future. Revenue Recognition: 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 commissions. An allowance for doubtful accounts for receivable is recorded. The Technology Companies recognize revenues in accordance with the provisions of Accounting Standards Codification (“ASC”) 605, Revenue Recognition and ASC 985-605, Software—Revenue Recognition. Revenues from leases of software products are recognized over the life of the lease while revenues from software product sales are generally recognized upon delivery, installation or acceptance pursuant to a signed agreement. Revenues from annual maintenance contracts generally call for the Company to provide software updates and upgrades to customers and are recognized ratably over the maintenance period. Consulting and other services are recognized upon acceptance by the customers under the completed contract method. The Company elects to use the completed contract method because customer’s acceptance is unpredictable and reliable estimates of the progress towards completion cannot be made. Only after a customer’s acceptance of a completed project are customer advances generally no longer at risk of refund and are therefore considered earned. Approximately 37% of the Company’s revenues in fiscal 2013 were derived from sales and leases of software licenses, annual maintenance contract and support services and consulting services that typically include implementation and training. With regard to arrangements accounted for under ASC 605-35, Multiple Elements Arrangements which include consulting and other services, licenses and annual maintenance, the Company has established Vendor Specific Objective Evidence (VSOE) of the values of these services, such that consulting and one-time license fees are generally recognized upon delivery, installation or acceptance pursuant to a signed agreement and the annual maintenance is recognized ratably over the specific maintenance contract term, usually one year. VSOE of fair value of the annual maintenance exists because a substantial majority of The Technology Companies’ contractual and actual maintenance renewals is within a narrow range of pricing as a percentage of the underlying license fees and are deemed substantive. Management Incentive Plan: In fiscal 1987, the Company implemented a Management Incentive Plan that entitles a participant to participate in pretax earnings before adjustment for certain items of the Company. In 2003, the Company modified the Plan to provide participants with three different types of non-negotiable incentive certificates based on the nature of the particular participants’ responsibilities. Each certificate entitles the participant to a specified share of the applicable pretax earnings in the year of grant and to receive the same percentage of pretax earnings to be generated in each of the next nine years provided they remain with the Company or are in retirement after working for the Company to age 65. If a participant dies while any of his or her certificates remain outstanding, future payments under those certificates will be made to the deceased participant’s beneficiaries. During fiscal 2012, the Company added a supplemental Addendum to the Sustain Certificate. This Addendum defines how the value of a Sustain Certificate will be paid upon a triggering event such as a sale of Sustain or an initial public offering. Certificate interests entitled participants to receive 3.66% and 3.60% (amounting to $351,120 and $513,500, respectively) of Daily Journal non-consolidated income before taxes, workers’ compensation, supplemental compensation and certain other items, 7.95% and 8.23% (amounting to $0 for both years) for Sustain and 8.2% and 8.2% (amounting to $241,240 and $701,520, respectively) for Daily Journal consolidated in fiscal 2013 and 2012. Employees and consultants of New Dawn and ISD are not currently eligible to participate in the Plan, but various possibilities are currently being considered by the Company’s compensation committee. One major participant in the Plan is over 65 but not retired, and the Company has accrued $1,620,000 as of September 30, 2013 for the Plan’s future commitment, which includes an additional decrease in fiscal 2013 of $1,610,000 or $.92 per share due to reduced estimated future Daily Journal consolidated pretax profits before adjustment for certain items. The estimated Management Incentive Plan’s future commitment is calculated using Level 3 inputs, as defined in the fair value hierarchy, based on an average of the current year and the current expectation of fiscal 2014 pretax earnings before certain items, discounted to the present value since each granted Unit will expire over its remaining life term of up to 10 years. Income taxes: The Company accounts for income taxes using an asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future consequences of temporary differences between the carrying amounts for financial reporting purposes and the tax basis of the assets and liabilities. The Company records liabilities related to uncertain tax positions in accordance with ASC 740, Tax Provisions. At September 30, 2013, there was no unrecognized tax liability for the uncertain tax positions as the Company settled the previously claimed research and development credits in its tax returns for the years 2002 to 2007 with the Internal Revenue Service in March 2012. 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 both fiscal 2013 and 2012. The Company does not have any common stock equivalents, and therefore basic and diluted net income per share is the same. Use of Estimates: The presentation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The long-term Management Incentive Plan accrual is a significant estimate and relies on projections of future pretax profits. The estimated Management Incentive Plan’s future commitment is calculated using Level 3 inputs, as defined in the fair value hierarchy, based on an average of the current year and the current expectation of fiscal 2014 pretax earnings before certain items, discounted to the present value since each granted Unit will expire over its remaining life term of up to 10 years. Additionally, the purchase price allocations for New Dawn and ISD were based on estimates of fair value at the respective acquisition dates, using Level 3 measurement inputs under the fair value measurement hierarchy. Actual results could differ from these estimates. Accounting Standards Adopted in 2013: In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, requiring entities to disclose additional information with respect to changes in accumulated other comprehensive income (AOCI) balances by component and significant items reclassified out of AOCI. This ASU was effective beginning October 1, 2013 for the Company, and the adoption has no impact on the Company’s consolidated results of operations or financial positions because it only represents a change to the presentation and disclosure requirements.

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