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Note 2 - Summary of Significant Accounting Policies
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Sep. 30, 2012
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| 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 its wholly-owned subsidiary, Sustain. All
intercompany accounts and transactions have been eliminated
in consolidation.
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 U.S. Treasury Bills and
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 Topic
820. At September 30, 2012, the aggregate fair
market value of the Company’s U.S. Treasury Bills and
marketable securities was $102,956,000. These
investments had approximately $52,464,000 of net unrealized
gains, consisting of gross unrealized gains of $54,653,000
and gross unrealized losses of $2,189,000 of which $1,209,000
were unrealized losses over one year. The U.S.
Treasury Bills have maturity dates of less than one year, and
the bonds have a maturity date in 2039. The
bonds are classified as “Current assets” because
they are available for sale. At September 30,
2011, the Company had U.S. Treasury Bills and marketable
securities at fair market value of approximately $69,216,000,
including approximately $24,532,000 of unrealized gains,
consisting of gross unrealized gains of $28,983,000 and gross
unrealized losses of $4,451,000.
Investment
in Financial Instruments
The
Company performed 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 has 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. In June 2012,
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
$2,855,000 ($1,720,000 net of taxes). This does
not necessarily indicate 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.
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.
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 FASB
ASC 740. At September 30, 2012, 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.
Property, plant
and equipment: Property, plant and
equipment are carried on the basis of
cost. 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, 2012, 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.
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.
Sustain
Software: The Company is continuing its
internal Sustain software development efforts. Costs related
to the research and development of new Sustain software
products are expensed as incurred until technological
feasibility of the product has been established, at which
time such costs are capitalized, subject to expected
recoverability. In general, “technological
feasibility” is achieved when the developer has
established the necessary skills, hardware and technology to
produce a product and a detailed program design has been (i)
completed, (ii) traced to the product specifications and
(iii) reviewed for high-risk development issues. If these
developments are not successful, there will be a significant
and adverse impact on the Company’s ability to maximize
its existing investment in the Sustain software, to service
its existing customers, and to compete for new opportunities
in the case management software business. Sustain expensed
personnel costs of $4,415,000 and $3,877,000 for the
development and implementation of its Web-based case
management system during fiscal 2012 and 2011,
respectively. These development and implementation
costs will materially impact earnings at least through the
foreseeable future.
Revenue
Recognition: 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.
The
Company recognizes revenues from both the lease and sale of
software products in accordance with ASC Topic 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
recognized normally 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.
Management
Incentive Plan: In fiscal 1987 the Company
implemented a Management Incentive Plan that entitles a
participant to participate in pre-tax earnings 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 pre-tax
earnings in the year of grant and to receive the same
percentage of pre-tax earnings 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 3.60% and 3.55% (amounting to
$513,500 and $548,480, respectively) of Daily Journal
non-consolidated income before taxes, workers’
compensation, supplemental compensation and extraordinary
items, 8.23% and 5.73% (amounting to $0 for both years) for
Sustain and 8.2% and 8.2% (amounting to $936,840 and
$1,090,760, respectively) for Daily Journal consolidated in
fiscal 2012 and 2011. One major participant in the
Plan is over 65 but not retired, and the Company has accrued
$4,200,000 for the Plan’s future commitment, which
includes a decrease in fiscal 2012 of $470,000 due to reduced
consolidated pretax profits before the expenses for the
Plan.
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 2012
and 2011. 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. Actual results could differ from these
estimates.
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 2012 and 2011.
Accounting
Standards Adopted in 2012: On January 1,
2012, the Company adopted the Financial Accounting Standards
Board’s Accounting Standards Update (ASU) No. 2011-04,
an amendment to ASC 820, “Fair Value
Measurement”, to achieve common fair value
measurement and disclosure requirements in U.S. GAAP and
International Financial Reporting Standards
(IFRS). The ASU changes the wording used to
describe many of the requirements in U.S. GAAP for measuring
fair value and for disclosing information about fair value
measurements to ensure consistency between U.S. GAAP and
IFRS. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial
statements.
In
March 2012 the Company adopted early the Financial Accounting
Standards Board’s Accounting Standards Update No.
2011-05, Comprehensive
Income (Topic 220) -- Presentation of Comprehensive
Income, which requires an entity to present the total
of comprehensive income, the components of net income, and
the components of other comprehensive income either in a
single continuous statement of comprehensive income or in two
separate but consecutive statements. This adoption provides
only a different presentation of the Company’s
comprehensive income and has no impact on its financial
statements.
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DAILY JOURNAL CORP - FORM 10-K - XML - IDEA: XBRL DOCUMENT - December 14, 2012
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