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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NO. 0-14665
DAILY JOURNAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SOUTH CAROLINA 95-4133299
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
355 SOUTH GRAND AVENUE
34TH FLOOR
LOS ANGELES, CALIFORNIA 90071-1560
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 624-7715
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par
value $.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [_]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K. [X]
As of December 8, 1995 the approximate aggregate market value of Daily
Journal Corporation's voting stock held by nonaffiliates was $25,000,000.
As of December 8, 1995 there were outstanding 1,646,306 shares of Common
Stock of Daily Journal Corporation.
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DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the
Annual Meeting of Shareholders to be held during February 1996 are
incorporated by reference into Part III.
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ITEM 1. BUSINESS
The Daily Journal Corporation is primarily a gatherer and distributor of
information through its publications and specialized information services.
California Newspaper Service Bureau, Inc., a wholly owned and consolidated
subsidiary since it was acquired in 1990, was a newspaper representative
specializing in public notice advertising. The Public Record Corporation, a
wholly owned and consolidated subsidiary since it was acquired in January
1995, publishes The Code of Colorado Regulations and newspapers for the
Colorado legal profession. Essentially all of the Company's operations are
based in California, Arizona, Colorado and Washington. The Daily Journal
Corporation was reincorporated in 1987 under the laws of South Carolina.
PRODUCTS
NEWSPAPERS. The Company publishes twelve newspapers of general circulation in
California, one in Washington, one for Nevada, two in Colorado and two in
Arizona. The Los Angeles Daily Journal, the Daily Commerce, the California
Real Estate Journal and the Nevada Journal, each based in Los Angeles; the San
Francisco Daily Journal, San Francisco; The Daily Recorder, Sacramento; The
Inter-City Express, Oakland; the Marin County Court Reporter, San Rafael; the
Orange County Reporter, Santa Ana; the San Jose Post-Record, San Jose; the
Sonoma County Daily Herald-Recorder, Santa Rosa; the San Diego Commerce, San
Diego; the Business Journal, Riverside; the Washington Journal, Seattle,
Washington; the Colorado Journal and the Brief Times Reporter, Denver,
Colorado and the Arizona Journal and the Record Reporter, Phoenix, Arizona.
Each newspaper, in addition to news of interest to the general public, has a
particular area of in-depth focus with regard to its news coverage, thereby
attracting readers interested in obtaining information about that area through
a newspaper format. The Company maintains editorial staff in Los Angeles, San
Francisco, Oakland, Santa Ana, Sacramento, Santa Rosa, San Jose, San Diego,
Riverside, Seattle, Denver, Phoenix and Washington, D.C.
THE DAILY JOURNALS. The Los Angeles Daily Journal and the San Francisco Daily
Journal are each published every weekday except certain holidays and were
established in 1888 and 1908, respectively. In addition to covering state and
local news of general interest, these newspapers focus particular coverage on
law and its impact on society. (The Los Angeles Daily Journal and the San
Francisco Daily Journal are referred to collectively herein as "The Daily
Journals".) Generally The Daily Journals seek to be of special utility to
lawyers and judges and to gain wide multiple readership of newspapers sent to
law firm subscribers.
The Los Angeles Daily Journal and the San Francisco Daily Journal are geared
toward their respective regions, but contain much material and render much
service in a common endeavor. The Los Angeles Daily Journal is the largest
newspaper published by the Company, both in terms of revenues and circulation.
At September 30, 1995, the Los Angeles Daily Journal had approximately 14,200
paid subscribers and the San Francisco Daily Journal had approximately 6,400
paid subscribers as compared with a total circulation of 21,300 at September
30, 1994. In addition, the Daily Journals are sold on some newsstands.
Revenues from The Daily Journals constituted approximately 47% of the
Company's total revenue during fiscal 1995, 46% during fiscal 1994 and 46%
during fiscal 1993. The Daily Journals also carry commercial advertising
(display and classified) and public notice advertising required or permitted
by law to be published in a newspaper of general circulation. The main source
of commercial advertising revenue has been local advertisers, law firms and
businesses in or wishing to reach the legal
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professional community. The gross revenues generated directly by The Daily
Journals are attributable approximately 40% to subscriptions and 60% to the
sale of advertising and other revenues.
The Daily Journals also contain the Daily Appellate Report which provides the
full text of all opinions certified for publication by the California Supreme
Court, the California Courts of Appeal, the U.S. Supreme Court, the U.S. Court
of Appeals for the Ninth Circuit, the U.S. Bankruptcy Appellate Panel for the
Ninth Circuit, the State Bar Court and certain opinions of the U.S. District
Courts in California and the Federal Circuit Court of Appeals. Inserted in
"pull-out" booklet format in the Daily Appellate Report is the monthly Court
Directory, a comprehensive list of sitting judges in all California courts as
well as courtroom assignments, phone numbers and courthouse addresses. The
Court Directory includes "Judicial Transitions" which lists judicial
appointments, elevations, confirmations, resignations, retirements and deaths.
The Daily Appellate Report, indexed monthly, also includes, when such courts
are in session, monthly supplements covering all cases pending before the U.S.
Supreme Court and the California Supreme Court describing issues about to be
decided in such pending cases. The Sacramento Digest is a periodic insert
which summarizes bills passing through the state legislature when it is in
session. It contains summaries of the opinions of the California Attorney
General, and the January issue provides a special legislative digest.
The Daily Journals also include several other features or supplements.
California Law Business, a twice monthly supplement, is printed in tabloid
format and features in-depth coverage of current topics of interest to lawyers
with a focus on the business aspects of the practice of law. Jury Verdicts and
Settlements is a weekly tabloid feature that lists certain settlement and
verdict date along with the attorneys and experts representing each party.
It is the policy of The Daily Journals (1) to take no editorial position on
the legal and political controversies of the day but instead to publish an
"op-ed" page consisting of well-written editorial views of others on many
sides of a controversy and (2) to try to report on factual events with
technical competence and with objectivity and accuracy. It is believed that
this policy suits a professional readership of exceptional intelligence and
education, which is the target readership for the newspapers. Moreover, The
Daily Journals believe that they bear a duty to their readership, particularly
judges and justices, as a self-imposed public trust, regardless, within
reason, of short-term income penalties. The Company believes that this policy
of The Daily Journals is in the long-term interest of the Company's
shareholders.
The Company publishes the Directory of California Lawyers (the "Directory"),
which is updated and published semiannually, in January and July. The
Directory includes in a single volume names, addresses, fax and telephone
numbers of California lawyers and many informational sections including
listings of corporate counsel, private judges and arbitrators, and federal and
state courts and governmental offices. In addition, the Directory includes
commercial advertising and specialty listings. The Directory is provided as
part of normal newspaper service to subscribers of The Daily Journals and The
Daily Recorder. In addition, a small number of Directories were sold during
fiscal 1995. In due course the Company plans to provide an option of
subscription service for The Daily Journals at a lower price for subscribers
who do not wish to receive the Directory.
The Daily Journals are distributed primarily by mail, with subscribers in the
Los Angeles and San Francisco areas usually receiving copies the same day.
Certain subscribers in Los Angeles, San Francisco, San Jose, Oakland, Orange
and San Diego counties receive copies by hand delivery, and additional copies
are distributed through newsstands and by microfilm subscriptions. The regular
yearly subscription rate for each of The Daily Journals is $389.
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WASHINGTON JOURNAL. The Company began publishing the weekly Washington
Journal in 1992. In addition to providing general news of state and local
interest, it seeks to be of special utility to lawyers and judges, with news
and features somewhat similar to those of The Daily Journals including local
verdicts and settlements. Summaries of federal, state and local court cases
are included as a pull-out section of the newspaper. The Washington Journal
had approximately 1,100 paid subscribers at September 30, 1995. The annual
subscription rate is $99, and it carries classified and display advertising.
NEVADA JOURNAL. The Company acquired the Nevada Supreme Court Reporter in
1994 and the name was changed to the Nevada Journal. Besides stories of local
interest concerning the courts and legal communities, the Nevada Journal
features full-text opinions issued by the Nevada Supreme Court. Also included
are summaries of the federal and the state supreme court opinions. Special
features include local verdicts and settlements, bar exam results and articles
on the federal opinions. The semi-monthly Nevada Journal as of September 30,
1995 had approximately 200 subscribers. The yearly subscription rate is $99.
DAILY COMMERCE. Published since 1917, the Daily Commerce, in addition to
covering news of general interest, devotes substantial coverage to items
designed to serve real estate investors and brokers, particularly those
interested in distressed properties. The features of the paper include default
listings, probate estate sales and real estate examination applicants. The
Daily Commerce carries both public notice and commercial advertising and is
published in the afternoon each business day. It had approximately 1,500 paid
subscriptions at September 30, 1995. A subscription to the Daily Commerce is
$190 per year.
THE DAILY RECORDER. The Daily Recorder, based in Sacramento, began operations
in 1911. It is published each business day. in addition to general news items,
it focuses on the Sacramento legal and real estate communities and on
California state government and activities ancillary to it, such as
administrative agency developments and lobbying. Among the regular features of
The Daily Recorder are news about government leaders and lobbyists, as well as
the Daily Appellate Report for those who request it. Advertising in The Daily
Recorder consists of both commercial and public notice advertising. The Daily
Recorder currently has approximately 1,400 paid subscribers, all of whom
receive the paper by mail. The current subscription rate is $183 per year.
THE INTER-CITY EXPRESS. The Inter-City Express (the "Express") has been
published since 1909. Published each business day, the Express covers general
news of local interest and focuses its coverage on news about the real estate
and legal communities in the Oakland/San Francisco area. The Express carries
both commercial and public notice advertising. The Express is mailed to its
approximately 600 subscribers, and the annual subscription rate is $130.
MARIN COUNTY COURT REPORTER. The Marin County Court Reporter (the "Marin
Reporter") began publishing in the mid-1960's. The Marin Reporter covers
general news of local interest, emphasizing local and state-wide news of
interest to the legal and real estate communities in Marin County, and carries
primarily public notice advertising. The Marin Reporter is published each
Tuesday and Friday. Approximately 300 subscribers presently receive the Marin
Reporter, all by mail delivery. The annual subscription rate is currently $95.
ORANGE COUNTY REPORTER. The Orange County Reporter ("Orange Reporter") has
been an adjudicated newspaper of general circulation since 1922. In addition
to general news of local interest, the Orange Reporter reports local and state
legal news, including the court calendars and court directories for Orange
County, and carries primarily public notice advertising. The Orange Reporter
is mailed to approximately 600 paid and requester subscribers. The annual
subscription rate is $75.
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SAN JOSE POST-RECORD. The San Jose Post-Record (the "Post-Record") has been
published since 1910. In addition to general news of local interest, the Post-
Record, which is published on business days, focuses on legal and real estate
news and carries commercial and public notice advertising. A yearly
subscription to the Post-Record is $110. The Post Record has approximately 400
subscribers who receive it by mail.
SONOMA COUNTY DAILY HERALD-RECORDER. The Sonoma County Daily Herald-Recorder
(the "Herald-Recorder") has been in existence since 1899. The newspaper
carries general news of local interest and is designed to be of special
interest to members of the legal and real estate professions. Advertising in
the newspaper consists of both public notice and commercial advertising. Its
approximately 300 subscribers receive the newspaper by mail, at a rate of $188
annually.
CALIFORNIA REAL ESTATE JOURNAL. The California Real Estate Journal (the "Real
Estate Journal") is a monthly newspaper directed primarily to persons
interested in the commercial real estate market, including real estate
brokers, developers and bankers. The Real Estate Journal carries news and
features such as the status of commercial projects, financial information and
articles on brokers and transactions, including defaults and new financings.
It carries display and classified advertising. At September 30, 1995 the
California Real Estate Journal had a circulation of approximately 2,700 plus
complimentary subscribers. The annual subscription rate is $79. The Real
Estate Journal is distributed primarily by mail.
SAN DIEGO COMMERCE. During 1992 the Company purchased the assets related to
the San Diego Commerce, which was combined with the Back Country Trader. The
San Diego Commerce is a thrice weekly newspaper which carries general news of
local interest and public notice advertising and has been an adjudicated
newspaper of general circulation since 1970. The San Diego Commerce also
serves the legal and real estate professional in San Diego County. The San
Diego Commerce has approximately 3,200 subscribers. The annual subscription
rate is $50, covering distribution by mail.
BUSINESS JOURNAL. The assets of the Desert Business Journal were purchased
during 1993, and it is now published as the Business Journal. The Business
Journal publishes news of general interest and provides coverage of the
business and professional communities in Riverside County. It is published
weekly with a total monthly distribution of about 10,000 paid and
complimentary copies. The annual subscription rate is $79.
THE BRIEF TIMES REPORTER AND COLORADO JOURNAL. The Brief Times Reporter was
acquired in January 1995, and it provides weekly the full-text and summaries
of all opinions of the Colorado Supreme Court and Colorado Court of Appeals.
In addition to general news of local interest, it also focuses on legal news.
In 1995 the Company also began publishing the weekly Colorado Journal,
including the Colorado Appellate Report which provides in a pull-out section
of the newspaper the full-text and summaries of all the opinions of the U.S.
Supreme Court, 10th U.S. Circuit Court of Appeals, the U.S. Bankruptcy
Appellate Panel and the full-text of the 10th Circuit Orders. The Colorado
Journal seeks to be of special utility to lawyers and judges with news and
features somewhat similar to those of The Daily Journals. It carries
classified and display advertising. Both The Brief Times Reporter and the
Colorado Journal are mailed to the same 900 paid subscribers. The annual
subscription price is $238.
THE RECORD REPORTER AND ARIZONA JOURNAL. The Record Reporter was acquired in
March 1995. In addition to general news of local interest, The Record
Reporter, which is published on business days, focuses on real estate news and
public record information and carries primarily public notice advertising. It
is mailed to approximately 200 paid subscribers. The annual subscription rate
is $135 for most subscribers. In 1995 the Company also began publishing the
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weekly Arizona Journal including the Arizona Appellate Report which provides
in a pull-out section of the newspaper summaries of the opinions of the U.S.
Supreme Court, 9th U.S. Circuit Court of Appeals, the U.S. Bankruptcy
Appellate Panel and summaries and full-text of the opinions of the Arizona
Supreme Court and Arizona Court of Appeals. The Arizona Journal seeks to be of
special utility to lawyers and judges with news and features somewhat similar
to those of The Daily Journals. It carries classified and display advertising,
and it has about 200 paid subscribers. The annual subscription rate is $106.
MAGAZINE. Since January 1988, the Company has published the California
Lawyer, a legal affairs magazine formerly produced by the State Bar of
California (the "State Bar"). The magazine was published by the Company in
cooperation with the State Bar until December 1993 when the agreement was
terminated and the State Bar commenced publishing its own monthly newspaper.
The magazine is sent free to the active members of the State Bar of
California, and the magazine also has approximately 1,100 paid subscribers. An
annual subscription to California Lawyer is $58. The termination of the
contract and State Bar's new publication has not had a material impact on the
Company's operations.
INFORMATION SERVICES. The specialized information services offered by the
Company have grown out of its newspaper operations, or have evolved in
response to a desire for such services from its newspaper subscribers.
The Company has several court rules services. One is Court Rules, a multi-
volume, loose-leaf set which had approximately 9,000 subscribers at September
30, 1995 paying $249 per year. Court Rules reproduces court rules for certain
state and federal courts in California. The Court Rules appear in two
versions, one of which covers Northern California courts (eight volumes) and
one which covers Southern California courts (seven volumes). The Company
updates Court Rules on a monthly basis. During fiscal 1989, the Company
initiated publication of a single volume of rules known as Local Rules for
major counties of California. Six versions are published for Southern
California, each a single bound volume for the rules of: (1) Los Angeles
County; (2) Orange County; (3) San Diego County; (4) San Bernardino County;
(5) Riverside County; (6) Ventura, Santa Barbara and San Luis Obispo counties.
In addition, the Company publishes single-volume rules for the Federal
District Court in the Central District of California. In Northern California,
three versions of the Local Rules appear in loose-leaf books for Santa
Clara/San Mateo, Alameda/Contra Costa and San Francisco counties. The regular
subscription price for Local Rules volumes ranges from $48 to $74 per year and
volumes are normally updated or replaced whenever there are rule changes. At
September 30, 1995, the Company had approximately 8,000 subscribers for its
Local Rules publications. In addition, the Company publishes a two-volume,
loose-leaf set of court rules for Colorado. These court rules were distributed
to the subscribers of The Brief Times Reporter.
The Judicial Profiles services contain biographical and professional
information concerning nearly all judges in California, both active and
retired, many of whom are available for private judging. Most of the profiles
have previously appeared in The Daily Journals as part of a regular feature.
During 1991 the Judicial Profiles were expanded to include biographical data
on judges and information supplied by each judge regarding the judge's
policies and views on various trial and appellate procedures and the manner in
which appearances are conducted in his or her courtroom. Subscribers may
purchase either the five volume set for Southern California or the four volume
set for Northern California. The approximately 1,000 subscribers to Judicial
Profiles receive updates on a quarterly basis. A subscription is $329 per
year.
During 1992 the Company purchased certain assets of Redloc Infosystems, Inc.,
primarily a computer on-line provider of foreclosure information to about 600
customers. This service provides distressed property information, some of
which also appears in some of the
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Company's newspapers, as well as expanded features. Consolidation of both
newspapers and on-line products more effectively utilizes the costs of
gathering such information.
ADVERTISING AND NEWSPAPER REPRESENTATIVE. The Company's publications carry
commercial advertising, and most also contain public notice advertising.
Commercial advertising consists of display and classified advertising. Public
notice advertising consists of about 100 different types of legal notices
required by law to be published in an adjudicated newspaper of general
circulation, including notices of death, fictitious business names, trustee
sale notices and notices of governmental hearings. The major types of public
notice advertisers are real estate-related businesses and trustees,
governmental agencies, attorneys and businesses or individuals filing
fictitious business name statements. In 1990 the Company acquired California
Newspaper Service Bureau, Inc. ("CNSB"), a state-wide newspaper representative
(commission-earning selling agent) specializing since 1934 in public notice
advertising. CNSB places notices and other forms of advertising with
adjudicated newspapers of general circulation, many of which are not owned by
the Company. Prior to fiscal 1993 CNSB provided ancillary services to
customers such as posting of notices and auctioneering services for trustee
customers, but those services were thereafter provided by a division of the
Company until October 1994, at which time such services were discontinued.
This has not had a material impact on the Company's operations.
Public notice advertising revenues and related advertising and other service
fees for the Company constituted about 33% of the Company's total revenues in
each of the last three fiscal years. In many states, including California,
legislatures have considered various proposals which would result in the
elimination or reduction of the amount of public notice advertising required
by statute. There is a risk that such laws could change in a manner that would
have a significant adverse impact on the Company's public notice advertising
revenues. The acquisition of CNSB, a marginal and threatened enterprise with a
negative book net worth when purchased, improves the Company's ability to
protect continued existence of public notice advertising. CNSB, because it
serves many newspapers all over California, is the logical locus for effective
representation of small newspapers before legislative bodies, and CNSB has
long been effective in this role. CNSB, which now operates as a division of
the Daily Journal Corporation, has become incrementally profitable in recent
years through Company-assisted improvements in operations, including but not
limited to elimination of unnecessary facilities.
PRINTING. The Company's main printing facilities are located in Los Angeles,
which currently are used primarily to print the Los Angeles Daily Journal
including supplements, the Daily Commerce, the Post-Record, The Express, The
Daily Recorder, the Orange Reporter, the Herald-Recorder, the Washington
Journal, the Marin Reporter, the Real Estate Journal, the Nevada Journal, the
Colorado Journal, the Arizona Journal and the monthly updates for the multi-
volume sets of Court Rules. The Daily Appellate Report is printed in Los
Angeles and shipped to Sacramento and San Francisco for inclusion in The Daily
Recorder and the San Francisco Daily Journal. Concurrent with the Company's
move to its new Los Angeles facility in 1990, the Company purchased a new
printing press with color capabilities. The San Francisco Daily Journal, San
Diego Commerce, the Business Journal, the Record Reporter, the Directory, the
Judicial Profiles and certain Court Rules are printed by outside contractors.
The Brief Times Reporter is printed on a small in-house press in Denver. The
Company has a small offset press for in-house printing of items such as legal
advertising forms, letterhead and envelopes, promotional flyers and other
material for its publications. This small press is operated by a local printer
as an independent contractor.
MATERIALS
After personnel costs, postage and paper costs are typically the Company's
next two largest expenses.
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The Company is subject to periodic increases in postal rates. During the past
several years, the Company has instituted changes in an attempt to mitigate
higher postage costs. These changes have included contracting for hand
delivery in selected sections of the San Francisco Bay area, San Diego, Orange
County and Los Angeles, delivering pre-sorted newspapers to the post office on
pallets, which facilitates delivery and improves service, and implementing a
method of bundling newspapers which reduces the per piece charges. In
addition, the Company has an ink jet labeler which eliminates paper labels and
enables the Company to receive bar code discounts from the postal service on
some of its newspapers. In 1995 postage costs increased due to higher postal
rates.
An adequate supply of newsprint and other paper is important to the Company's
operations. The Company currently does not have a contract with paper
suppliers. The Company has always been able to obtain sufficient newsprint for
its operations, although in the past, shortages of newsprint have sometimes
resulted in higher prices. During the past couple of years the price of paper
has increased substantially, and the Company has not been able to pass on all
the recent major paper price increases to its advertisers and subscribers.
Consequently, its income from operations has been adversely affected, and
these developments are likely to continue to increase total expenses.
MARKETING
The Company actively promotes both its individual newspapers and its multiple
newspaper network as well as its other publications. The Company's staff
includes a number of employees whose primary responsibilities include
attracting new subscribers and advertisers. The specialization of each
publication creates both target subscribers and target advertisers.
Subscribers are likely to be attracted because of the nature of the
information carried by the particular publication, and likely advertisers are
those interested in reaching such consumer groups. In marketing products, the
Company also focuses on its ancillary products which can be of service to
subscribers, such as its specialized information services.
The Company receives, on a non-exclusive basis, public notice advertising
from a number of agencies. Such agencies ordinarily receive a commission of
15% to 25% on their sales of advertising in Company publications. Commercial
advertising agencies also place advertising in Company publications and
receive commissions for advertising sales.
COMPETITION
Competition for readers and advertisers is very intense, both by established
publications and by new entries into the market. For example, shortly before
the Company purchased the San Francisco Daily Journal, Associated Newspapers,
the owner of a controlling interest in a number of American law-oriented
publications including the American Lawyer, purchased a law-oriented San
Francisco newspaper and thereafter pursued subscribers and advertisers with
more skill and determination than were employed by the former publisher. In
1989 Associated Newspapers sold a controlling interest to Time Warner Inc.,
the largest U.S. media company, which has continued very aggressive
competition, including amazingly low "price-war" type prices for multiple-copy
subscriptions. All of the Company's real estate and business publications and
products face strong competition from other publications and service
companies.
Readers of specialized newspapers focus on the amount and quality of general
and specialized news, amount and type of advertising, timely delivery and
price. The Company
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designs its newspapers to fill niches in the news marketplace that are not
covered as well by major metropolitan dailies. The in-depth news coverage
which the Company's newspapers provide along with general news coverage
attracts readers who, for personal or professional reasons, desire to keep
abreast of topics to which a major newspaper cannot devote significant news
space. Other newspapers do provide some of the same subject coverage as does
the Company, but the Company believes its coverage, particularly that of The
Daily Journals, is more complete and therefore attracts more readers. The
Company believes that the Daily Journals are the most important newspapers
serving California lawyers on a daily basis. The new Colorado Journal and the
Arizona Journal are just beginning to build readership in their respective
markets.
In attracting commercial advertisers, the Company competes with other
newspapers and magazines, television, radio and other media, including
electronic network systems for employment-related classified advertising.
Factors which may affect competition for advertisers are the cost for such
advertising compared with other media, and the size and characteristics of the
readership of the Company's publications. The Company competes with anywhere
from one serious competitor to several competing newspapers for public notice
advertising revenue in all of its markets. Large metropolitan general interest
newspapers normally do not carry a significant amount of legal advertising,
although recently they too have solicited certain types of public notice
advertising. The Company estimates its market share of public notice
advertising revenues ranges from 10% to 75% in the various areas where its
adjudicated newspapers are published.
Commencing in 1994, the Company's California Lawyer magazine faced additional
competition from a new State Bar of California publication that is discussed
in the Products-Magazine section above.
The Company's court rules publications face competition in the Southern
California market as well as in Northern California where the competitors are
focused primarily on the San Francisco Bay Area courts. In addition, the
Company expects increased competition from on-line and CD-ROM services. While
subscriptions to the multi-volume Court Rules have declined during fiscal
1995, this was partially offset by an increase in subscriptions to the
Company's individual Local Rules volumes. The Company's Judicial Profile
services have direct competition and also indirect competition since some of
the same information is available through other sources.
The pricing of the Company's products is reviewed every year. Subscription
price increases have in recent years exceeded inflation, as have advertising
rate increases, but these rate increases did not keep pace with higher paper
prices and postal rates in fiscal 1995.
CNSB faces competition from a number of other companies based in California,
some of which specialize in placing certain types of notices, and CNSB, before
its acquisition by the Company, had been marginally profitable in its best
years and had often suffered significant losses.
EMPLOYEES
The Company employs approximately 315 full-time employees and about 50 part-
time employees. The Company is not a party to any collective bargaining
agreements. Certain benefits, including medical insurance, are provided to all
full-time employees. Management considers its employee relations to be good.
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WORKING CAPITAL
Traditionally, the Company has generated sufficient cash flow from operations
to cover all needs including capital expenditures without significant
borrowing. To a very considerable extent, the Company benefits in this regard
from the fact that subscriptions are generally paid a year in advance.
However, the construction of the new office and printing facility in Los
Angeles in 1990 required significant borrowing. The company has a bank term
loan, bearing interest at the prime rate plus one percentage point. The term
loan is secured by all the assets of the Company except real estate. The
assets pledged include net accounts receivable, now over $6.5 million. The
term loan prohibits the payment of dividends to shareholders but may be repaid
at any time without penalty. As of September 30, 1995, the term loan had a
balance of about $1.3 million payable in equal monthly installments through
January 1998.
INFLATION
The effects of inflation are not significantly any more or less adverse on
the Company's businesses than they are on other publishing companies. The
Company has experienced the effects of inflation primarily through increases
in costs of labor, newsprint, postage and services. These costs have generally
been offset by periodic price increases for advertising and subscription
rates, but with frequent exceptions during the past several years when the
Company has experienced substantial increases in postage and newsprint
expenses and additional costs related to acquisitions. In addition, recent
reductions in classified advertising lineage, particularly in the "help-
wanted" category, have prevented full recovery of cost increases. During 1995
newsprint and other paper prices have continued to rise and postal costs have
increased due to higher postal rates. These developments which far exceeded
the rate of inflation are likely to continue to increase total expenses.
EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth certain information with regard to the executive
officer who is not a director of the Company. All of the executive officers of
the Company serve at the pleasure of the Board of Directors.
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NAME AGE PRINCIPAL OCCUPATION LAST FIVE YEARS
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Ira A. Marshall, Jr... 72 Secretary of the Company since 1977; Mr. Marshall is
a private investor and businessman making
investments for his own account and is a Trustee of
Mesabi Trust, which collects and distributes
royalties from the Mesabi Trust's interests in
mining properties.
</TABLE>
ITEM 2. PROPERTIES
The Los Angeles property is comprised of a two-story, 34,000 square foot
building constructed in 1990, of which approximately 75% is devoted to office
space and the remainder houses printing and production equipment and
facilities. The Company owns two buildings aggregating about 9,500 square feet
in Sacramento, which provide space for its offices and storage. The Phoenix
property is a single story, 9,700 square foot building constructed in 1988, of
which approximately 2,300 is devoted to office space and the remainder houses
production equipment and storage, some of which is used by a printing company
which prints The Record Reporter.
In San Francisco, the Company leases approximately 10,800 square feet of
office space under a lease expiring in 1998 but subject to early termination
by paying termination fees. In addition, the Company rents facilities in each
of the remaining cities where its staff is located on a month-to-month basis
or pursuant to leases generally of no longer than three years remaining
duration.
9
<PAGE>
See Note 6 of Notes to Consolidated Financial Statements for information
concerning rents payable under leases.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is a party to litigation in the ordinary course
of business. Currently, the Company is not aware of any material pending
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the last quarter
of the Company's fiscal year ended September 30, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The following table sets forth the sales prices of the Company's common stock
for the periods indicated. Quotations are as reported by Nasdaq, the automated
quotation system of the National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1994
Quarter ended December 31, 1993........................... 20 3/8 13 3/4
Quarter ended March 31, 1994.............................. 20 5/8 17 1/2
Quarter ended June 30, 1994............................... 19 1/8 17
Quarter ended September 30, 1994.......................... 19 1/2 16 3/4
FISCAL 1995
Quarter ended December 31, 1994........................... 19 16 1/2
Quarter ended March 31, 1995.............................. 20 1/4 16 1/2
Quarter ended June 30, 1995............................... 24 1/2 18 1/2
Quarter ended September 30, 1995.......................... 31 22 1/2
</TABLE>
As of December 8, 1995 there were approximately 2,000 holders of record of
the Company's common stock.
The Company did not declare or pay any dividends during fiscal years 1994 and
1995. The Company's bank term loan agreement limits the payment of dividends,
but the loan may be repaid at any time without penalty. A determination by the
Company whether or not to pay dividends in the future will depend on numerous
factors, including the company's earnings, cash flow, financial condition,
capital requirements, future prospects, acquisition opportunities, and other
relevant factors. The Board of Directors does not expect that the Company will
pay any dividends or other distributions to shareholders in the foreseeable
future.
From time to time, the Company has purchased shares, including treasury
shares, of its Common Stock and may continue to do so. See Note 2 to
consolidated financial statements. Stock purchases are made primarily to
reduce dilution of earnings per share caused by the deferred management
incentive plan under which selected employees are given, subject to certain
conditions, bonuses tied to future pre-tax earnings. During fiscal 1995 the
Company purchased 7,805 shares of Common Stock at an average price per share
of $19.53.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain data for each of the years in the
five-year period ended September 30, 1995. This information should be read in
conjunction with the financial statements and accompanying notes included in
this report on Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Revenues
Advertising.................... $20,254 $18,801 $17,364 $17,293 $16,770
Circulation.................... 10,686 10,031 9,413 8,889 8,139
Advertising service fees and
other......................... 3,638 4,502 4,546 4,536 3,986
------- ------- ------- ------- -------
34,578 33,334 31,323 30,718 28,895
------- ------- ------- ------- -------
Costs and expenses
Salaries and employee
benefits...................... 14,202 13,539 13,631 13,177 13,227
Newsprint and printing
expenses...................... 4,084 3,362 3,278 3,768 3,835
Commissions and other outside
services...................... 4,553 4,197 3,874 3,484 3,449
Postage and delivery costs..... 2,461 2,314 2,408 2,563 2,419
Depreciation and amortization.. 2,078 2,325 1,799 1,609 1,605
Other, including interest
expense....................... 3,759 3,921 3,922 4,689 4,358
------- ------- ------- ------- -------
31,137 29,658 28,912 29,290 28,893
------- ------- ------- ------- -------
Income before taxes.............. 3,441 3,676 2,411 1,428 2
Provision for income taxes....... 1,400 1,500 1,200 700 1
------- ------- ------- ------- -------
Net income....................... $ 2,041 $ 2,176 $ 1,211 $ 728 $ 1
======= ======= ======= ======= =======
Net income per share............. $ 1.26 $ 1.34 $ .73 $ .42 $ --
======= ======= ======= ======= =======
<CAPTION>
SEPTEMBER 30
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital as conventionally
reported........................ $ (254) $ (922) $(2,927) $(3,515) $(7,225)
Working capital before deductions
of specified items (1).......... 5,544 4,757 2,324 1,600 1,368
Total assets..................... 20,752 19,932 18,077 17,784 18,656
Management termination fee
payable......................... -- 20 55 90 125
Long term notes payable.......... 725 1,264 2,300 2,840 212
Shareholders' equity............. 8,377 6,489 4,313 3,548 3,437
</TABLE>
- --------
(1) Before deducting for each of the five years the liability for deferred
subscription revenue which will be earned within one year, and after
deducting short-term bank loans of $3,750,000 in 1991, subsequently
financed by long-term debt.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Revenues were $34,578,000 and $33,334,000 for fiscal year 1995 and 1994,
respectively. This increase of 4% is primarily attributable to subscription
and advertising rate increases and additional display advertising lineage
partially offset by decreases in classified and public notice advertising
lineage. Recent acquisitions accounted for $872,000 of this increase, while a
$473,000 decrease in other revenues resulted from the discontinuance of
certain services for trustee sale customers.
During fiscal 1995, display and classified advertising revenues were up by
$544,000 and $305,000, respectively, and public notice advertising revenues
increased by $604,000 primarily resulting from recent acquisitions. The
Company's smaller newspapers, excluding the Los Angeles and San Francisco
Daily Journals ("The Daily Journals"), account for about 77% of the total
public notice advertising revenues. Public notice advertising revenues and
related advertising and other service fees constituted about 34% of the
Company's total revenues. Circulation revenues increased $655,000, including
$432,000 from the recently acquired The Public Record Corporation. The Daily
Journals account for about 60% of the Company's total circulation revenues,
and their circulation levels decreased slightly. The Rule Book and Judicial
Profile services generate about 26% of the total circulation revenues, with
the other newspapers and services accounting for the balance.
During fiscal year 1995, costs and expenses increased by 5% to $31,137,000 from
$29,658,000, including $1,070,000 from recent acquisitions. Personnel costs
increased by $663,000 of which $369,000 resulted from recent acquisitions.
Normal annual salary adjustments accounted for the balance of this increase in
personnel costs. Newsprint and printing expenses increased by $722,000 primarily
because of the higher cost of newsprint. Advertising agency commissions and
other outside services increased by $356,000 primarily because of additional
agency sales and computer services. Depreciation and amortization expenses
decreased by $247,000 mainly due to reduced write-offs of computer and
intangible assets. The decrease in other expenses of $162,000 included lower
legal, advertising, and interest expenses.
Pretax income in fiscal 1995 decreased $235,000 (6%) to $3,441,000 from
$3,676,000 in fiscal 1994. The Company's smaller newspapers and its newspaper
representative, which specializes in public notice advertising, accounted for
about 53% of the Company's pretax income. Net income in fiscal 1995 was
$2,041,000 compared to a net income of $2,176,000 in the prior year. Net
income per share decreased to $1.26 from $1.34.
1994 COMPARED TO 1993:
Revenues were $33,334,000 and $31,323,000 for the years ended September 30,
1994 and 1993, respectively. This increase of 6% is primarily attributable to
subscription and advertising rate increases and additional display and public
notice advertising lineage.
During fiscal 1994, display and public notice advertising revenues were up by
$629,000 and $530,000, respectively, and classified advertising revenues
increased by $278,000 primarily due to a rate increase partially offset by a
decrease in classified advertising lineage. One of the company's important
classified advertising revenue sources is help-wanted advertising that is
sensitive to the general business levels and continues under pressure
throughout the southern california newspaper industry at this time. Public
notice advertising revenues increased
12
<PAGE>
primarily because of additional foreclosure notices resulting from recent bad
economic conditions in California that, when improved, should cause reductions
in the need to publish foreclosure notices. The Company's smaller newspapers
(excluding The Daily Journals) accounted for about 72% of the total public
notice advertising revenues. Public notice advertising revenues and related
advertising and other service fees constituted about 33% of the Company's
total revenues. Circulation revenues increased $618,000 primarily because of
rate increases for The Daily Journals that accounted for about 61% of the
Company's total circulation revenues. The combined Daily Journal circulation
levels decreased slightly. The Rule Book and Judicial Profile services
generated about 29% of total circulation revenues, with other services
accounting for the balance.
Costs and expenses increased by 3% to $29,658,000 from $28,912,000. Personnel
costs decreased slightly with normal salary adjustments offset by a slight
reduction in the staff. Advertising agency commissions increased by $214,000
because of additional agency sales while other outside services increased by
$109,000 primarily due to additional mailing, book printing and computer
support services. Postage and delivery costs decreased by $94,000 primarily
due to smaller papers and implementation of cost saving postal programs.
Depreciation and amortization expenses increased by $526,000 primarily due to
the write-off of computer assets and intangible assets.
Pretax income in fiscal 1994 increased $1,265,000 (52%) to $3,676,000 from
$2,411,000 in fiscal 1993. The Company's smaller newspapers and its newspaper
representative, which specializes in public notice advertising, accounted for
about 65% of the pretax income. Net income in fiscal 1994 was $2,176,000
compared to a net income of $1,211,000 for the fiscal year ended September 30,
1993. Net income per share increased to $1.34 from $.73.
Since January 1988, the Company has published the California Lawyer, a legal
affairs magazine formerly produced by the State Bar which had approximately
140,000 members. The magazine was published by the Company in cooperation with
the State Bar, with at least 12 pages in each issue reserved for official
State Bar information. The mailing list of the members of the State Bar was
provided by the State Bar. The magazine was sent free to members of the State
Bar of California and, at September 30, 1993, the magazine also had
approximately 2,500 paid or complimentary subscribers.
The agreement with the State Bar provided for a payment by the State Bar to the
Company of a total fee of $1.00 per year for each member receiving the magazine.
In April 1993 the State Bar's Board of Governors voted to terminate its
agreement with the Company and create its own official State Bar publication.
The termination of the contract was effective December 1993. Incident to the
termination, the Company announced that it intended to continue publishing
California Lawyer (which name has been transferred to the Company) without the
participation of the State Bar and believed that termination of the contract
with the State Bar would not have a material impact on the Company's operations.
In fiscal 1993 California Lawyer had revenues of $3,439,000 and the decline in
display advertising revenues increased its pretax losses to about $500,000. The
Company also formerly published, upon the State Bar's request, a monthly
newsletter in the Los Angeles Daily Journal and the San Francisco Daily Journal
at no additional cost to the State Bar. This newsletter was also discontinued as
a consequence of the termination of the contract with the State Bar.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1995, the Company's cash and cash equivalent position decreased
by $1,495,000 while the investments in U.S. Treasury Bills increased by
$1,442,000. In addition, cash and cash equivalents were used to reduce notes and
management fees payable by
13
<PAGE>
$555,000, for the net purchase of capital assets, including acquisitions, of
$2,531,000 and to purchase common stock for an aggregate amount of $153,000.
The cash provided by operating activities of $3,186,000 included a net
increase in prepayments for subscriptions of $119,000. Proceeds from the sale
of subscriptions from newspapers, court rule books and other publications are
booked as deferred subscription revenue and are included in earned revenue
only over the duration of the subscriptions. As of September 30, 1995, the
Company had working capital of $5,544,000 before deducting the liability for
deferred subscription revenues of $5,798,000 which will be earned within one
year. The cash and short-term investments in U.S. Treasury Bills, aggregating
about $3.5 million at September 30, 1995, and the current level of cash
provided by operating activities appear adequate to meet the obligations of
the Company. In recent months, in general, newsprint prices have been rising,
and in 1995 postal costs increased due to higher postal rates. These
developments are likely to continue to increase total expenses.
In January 1995, the Company acquired for about $463,000 in cash The Public
Record Corporation which primarily publishes The Code of Colorado Regulations
and The Brief Times Reporter, a court opinion service for the Colorado legal
profession. In connection with this acquisition the Company assumed the
liability for the unexpired subscriptions and entered into an employment
agreement with a former owner. In addition, in March 1995 the Company acquired
for about $928,000 in cash the assets of a small newspaper including land and
building in Phoenix, Arizona. These transactions were accounted for as
purchases. Proforma results of operations have not been presented, as the
effects of these transactions are not material to the Company's operating
results.
The Company completed in 1990 a new Los Angeles office and printing facility.
This has been financed by a term loan which has a balance payable of
$1,261,000 at September 30, 1995. It bears interest at the prime rate plus one
percentage point and is repayable in equal monthly installments of $45,000
through January 1998. The term loan is secured by all assets of the Company
except real estate. The assets pledged include net accounts receivable of
approximately $6.5 million. The term loan limits dividends and the amount the
Company can pay to repurchase stock, but the loan may be repaid at any time
without penalty.
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." the
adoption of SFAS 109 which mandates the liability method for computing
deferred income taxes did not materially affect the Company's financial
condition or results of operations for the year ended September 30, 1994.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." SFAS 115, effective for fiscal years beginning
after December 1993, requires that debt and equity securities which are
classified as "held for maturity" be recorded at amortized cost in the
financial statements. The Company's investments in debt securities at
September 30, 1995 consist of two U.S. Treasury Bills for which the Company
has the intent and ability to hold to the maturity dates of February 15, 1996
and March 28, 1996. The Company adopted SFAS 115 in fiscal year 1994.
The effects of inflation are not significantly any more or less adverse on
the Company's businesses than they are on other publishing companies. In
recent years the Company experienced the effects of inflation primarily
through increases in costs of labor and services. These costs have generally
been offset by periodic price increases for advertising and subscription
rates, but with frequent exceptions during the past several years when the
Company has experienced additional costs related to acquisitions. In addition,
recent reductions in classified advertising lineage, particularly in the
"help-wanted" category, have
14
<PAGE>
prevented full recovery of cost increases. During 1995, newsprint and other
paper prices have continued to rise, and postal costs have increased due to
higher postal rates. These developments which far exceeded the rate of
inflation are likely to continue to increase total expenses.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data required by Item 8 appear
herein at pages 19 through 28.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information set forth in the tables, the notes thereto, and the
paragraphs under the caption "Election of Directors-Directors," in the
Company's Proxy Statement for Annual Meeting of Shareholders to be held on or
about February 8, 1996 (The "Proxy Statement"), is incorporated herein by
reference. The information set forth under Item 1 of this Form 10-K Under the
caption "Executive Officers of Registrant" is also incorporated herein by
reference.
Item 11. Executive Compensation
The information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Executive Compensation--
Compensation Committee interlocks and Insider Participation" in the Proxy
Statement is incorporated herein by reference.
15
<PAGE>
PART IV
ITEM 14(a). EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
(1) Consolidated Financial Statements:
Report of Independent Accountants................................... 19
Consolidated Balance Sheet at September 30, 1995 and 1994........... 20
Consolidated Statement of Income for each of the three years in the
period ended September 30, 1995..................................... 21
Consolidated Statement of Changes in Shareholders' Equity for each
of the three years in the period ended September 30, 1995........... 21
Consolidated Statement of Cash Flows for each of the three years in
the period ended September 30, 1995................................. 22
Notes to Consolidated Financial Statements.......................... 23
(2) Consolidated Financial Statement Schedules for the three years ended
September 30, 1995:
VIII Valuation and Qualifying Accounts.............................. 27
X Supplementary Income Statement Information........................ 28
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
</TABLE>
(3) Exhibits
<TABLE>
<C> <S>
3.1 Articles of Incorporation of Daily Journal Corporation, as
amended.(2)
3.2 Bylaws of Daily Journal Corporation. (3)
10.1 Management agreement by and between Daily Journal Company and
Newspaper Management & Underwriting Company. (2)
10.5 Form of Non-Negotiable Certificate Representing an Employee
Participant Interest in the Daily Journal Corporation ("DJC") Plan
for Supplemental Compensation to an Employee as long as that
Employee Remains Employed by DJC, Based on Pre-Tax Earnings of
Common Shares of DJC. (2)(*)
10.6 Resolution of Board of Directors of Daily Journal dated November 7,
1985, pursuant to which Daily Journal Company assumed certain
liabilities of New America Fund, Inc. (2)
10.8 Lease dated March 12, 1987 between Daily Journal Company and Calfox,
Inc., as Managing Agent, including Amendments One through Four
thereto. (3)
10.16 (b) Term Promissory Note of Daily Journal Corporation to City National
Bank. (1)
21.0 Subsidiary of Daily Journal Corporation. (3)
</TABLE>
16
<PAGE>
- --------
(1) Filed as an Exhibit bearing the same number to the Annual Report on Form
10-K of the Company for the year ended September 30, 1992.
(2) Filed as an Exhibit bearing the same number to the Annual Report on Form
10-K of the Company for the year ended September 30, 1993.
(3) Filed as an Exhibit bearing the same number to the Annual Report on Form
10-K of the Company for the year ended September 30, 1994.
(*) Management Compensatory Plan.
ITEM 14(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the Company's
fiscal year ended September 30, 1995.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Daily Journal Corporation
/S/ GERALD L. SALZMAN
BY __________________________________
Gerald L. Salzman
President
Date: December 12, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ Charles T. Munger Chairman of the December 12, 1995
- ------------------------------------- Board
CHARLES T. MUNGER
/S/ Gerald L. Salzman President, December 12, 1995
- ------------------------------------- Treasurer, Chief
GERALD L. SALZMAN Financial Officer,
Principal
Accounting Officer
and Director
/S/ J.P. Guerin Director December 12, 1995
- -------------------------------------
J.P. GUERIN
Director
- -------------------------------------
DONALD W. KILLIAN, JR.
Director
- -------------------------------------
GEORGE C. GOOD
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
of the Daily Journal Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under items 14(a)(1) and (2) on page 16 present fairly, in all
material respects, the financial position of the Daily Journal Corporation and
its wholly owned subsidiaries at September 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Los Angeles, California
December 8, 1995
19
<PAGE>
DAILY JOURNAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 573,000 $ 2,068,000
U.S. Treasury Bills, at cost plus discount earned.. 2,934,000 1,479,000
Accounts receivable, less allowance for doubtful
accounts of $600,000 and $1,000,000............... 6,531,000 6,074,000
Inventories........................................ 117,000 94,000
Prepaid expenses and other assets.................. 378,000 268,000
Deferred income taxes.............................. 951,000 1,254,000
----------- -----------
Total current assets............................. 11,484,000 11,237,000
----------- -----------
Property, plant and equipment, at cost:
Land, buildings and improvements................... 6,951,000 6,660,000
Furniture and office equipment..................... 4,884,000 5,951,000
Machinery and equipment............................ 1,548,000 1,330,000
----------- -----------
13,383,000 13,941,000
Less accumulated depreciation...................... (5,461,000) (5,398,000)
----------- -----------
7,922,000 8,543,000
Deferred income taxes................................ 222,000 104,000
Intangible assets, at cost, less accumulated
amortization of $263,000 and $97,000................ 1,124,000 48,000
----------- -----------
$20,752,000 $19,932,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 2,490,000 $ 2,697,000
Accrued liabilities................................ 2,826,000 3,251,000
Notes payable...................................... 536,000 532,000
Deferred subscription revenue...................... 5,798,000 5,679,000
----------- -----------
Total current liabilities........................ 11,650,000 12,159,000
----------- -----------
Management termination fee payable................... -- 20,000
----------- -----------
Notes payable........................................ 725,000 1,264,000
----------- -----------
Commitments and contingencies (note 6)............... -- --
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized and no shares issued................... -- --
Common stock, $.01 par value, 5,000,000 shares
authorized; 1,646,306 shares and 1,654,111 shares,
respectively, outstanding......................... 16,000 17,000
Other paid-in capital.............................. 2,093,000 2,102,000
Retained earnings.................................. 6,619,000 4,721,000
Less 30,429 treasury shares, at cost............... (351,000) (351,000)
----------- -----------
Total shareholders' equity....................... 8,377,000 6,489,000
----------- -----------
$20,752,000 $19,932,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Advertising............................... $20,254,000 $18,801,000 $17,364,000
Circulation............................... 10,686,000 10,031,000 9,413,000
Advertising service fees and other........ 3,638,000 4,502,000 4,546,000
----------- ----------- -----------
34,578,000 33,334,000 31,323,000
----------- ----------- -----------
Costs and expenses:
Salaries and employee benefits............ 14,202,000 13,539,000 13,631,000
Newsprint and printing expenses........... 4,084,000 3,362,000 3,278,000
Commissions and other outside services.... 4,553,000 4,197,000 3,874,000
Postage and delivery expenses............. 2,461,000 2,314,000 2,408,000
Depreciation and amortization............. 2,078,000 2,325,000 1,799,000
Other, including interest expense......... 3,759,000 3,921,000 3,922,000
----------- ----------- -----------
31,137,000 29,658,000 28,912,000
----------- ----------- -----------
Income before taxes......................... 3,441,000 3,676,000 2,411,000
Provision for income taxes.................. 1,400,000 1,500,000 1,200,000
----------- ----------- -----------
Net income.................................. $ 2,041,000 $ 2,176,000 $ 1,211,000
=========== =========== ===========
Net income per share........................ $ 1.26 $ 1.34 $ .73
=========== =========== ===========
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
OTHER TOTAL
COMMON PAID-IN RETAINED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30,
1992................... $17,000 $2,137,000 $1,570,000 $(177,000) $3,547,000
Net income.............. 1,211,000 1,211,000
Purchase of treasury
stock.................. (174,000) (174,000)
Purchase of common
stock.................. (35,000) (236,000) (271,000)
------- ---------- ---------- --------- ----------
Balance at September 30,
1993................... 17,000 2,102,000 2,545,000 (351,000) 4,313,000
Net income.............. 2,176,000 2,176,000
------- ---------- ---------- --------- ----------
Balance at September 30,
1994................... 17,000 2,102,000 4,721,000 (351,000) 6,489,000
Net income.............. 2,041,000 2,041,000
Purchase of common
stock.................. (1,000) (9,000) (143,000) (153,000)
------- ---------- ---------- --------- ----------
Balance at September 30,
1995................... $16,000 $2,093,000 $6,619,000 $(351,000) $8,377,000
======= ========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 2,041,000 $ 2,176,000 $ 1,211,000
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization........ 2,078,000 2,325,000 1,799,000
Deferred income taxes................ 185,000 150,000 (110,000)
Discount earned on U.S. treasury
bills............................... (13,000) -- --
Gain on sale of capital assets....... (2,000) ( 43,000) --
Changes in assets and liabilities:
(Increase) decrease in current
assets
Accounts receivable, net........... (457,000) (1,020,000) (139,000)
Inventories........................ (23,000) 1,000 82,000
Prepaid expenses and other assets.. (110,000) (755,000) 241,000
Increase (decrease) in current
liabilities
Accounts payable................... (207,000) 132,000 80,000
Accrued liabilities................ (425,000) 629,000 237,000
Income taxes payable............... -- (436,000) (218,000)
Deferred subscription revenue...... 119,000 428,000 137,000
----------- ----------- -----------
Cash provided by operating
activities..................... 3,186,000 3,587,000 3,320,000
----------- ----------- -----------
Cash flows from investing activities:
Purchase of U.S. Treasury Bills....... (1,442,000) (1,465,000) --
Capital expenditures including
acquisitions.......................... (2,531,000) (1,532,000) (1,322,000)
Proceeds from sale of capital assets.. -- -- 1,000
----------- ----------- -----------
Cash used for investing
activities..................... (3,973,000) (2,997,000) (1,321,000)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments under management
termination fee payable and notes
payable.............................. (555,000) (1,074,000) (709,000)
Purchase of treasury and common
stock................................ (153,000) -- (445,000)
----------- ----------- -----------
Cash used for financing
activities..................... (708,000) (1,074,000) (1,154,000)
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................ (1,495,000) (484,000) 845,000
Cash and cash equivalents:
Beginning of year..................... 2,068,000 2,552,000 1,707,000
----------- ----------- -----------
End of year........................... $ 573,000 $ 2,068,000 $ 2,552,000
=========== =========== ===========
Interest paid during year............... $ 169,000 $ 202,000 $ 243,000
Income taxes paid during year........... $ 1,302,000 $ 1,525,000 $ 1,341,000
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
DAILY JOURNAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND OPERATIONS
The Daily Journal Corporation (the "Company") is primarily a gatherer and
distributor of information through its publications and specialized
information services. California Newspaper Service Bureau, Inc., a wholly
owned and consolidated subsidiary since it was acquired in 1990, was a
newspaper representative specializing in public notice advertising. The Public
Record Corporation, a wholly owned and consolidated subsidiary since it was
acquired in January 1995, publishes The Code of Colorado Regulations and
newspapers for the Colorado legal profession. Essentially all of the Company's
operations are based in California, Arizona, Colorado and Washington. The
Daily Journal Corporation was reincorporated in 1987 under the laws of South
Carolina.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Daily Journal Corporation and its subsidiaries, all of which
are wholly-owned. All significant inter-company accounts and transactions have
been eliminated in consolidation.
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.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115, effective for fiscal
years beginning after December 1993, requires that debt and equity securities
which are classified as "held for maturity" be recorded at amortized cost in
the financial statements. The Company's investments in debt securities at
September 30, 1995 consist of two U.S. Treasury Bills for which the Company
has the intent and ability to hold to the maturity dates of February 15, 1996
and March 28, 1996. The Company adopted SFAS 115 in fiscal year 1994.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of cash,
investments in U.S. Treasury Bills, accounts receivable, accounts payable and
short-term debt approximate fair value because of the short maturity of these
financial instruments. The fair values of long term debt obligations are
estimated based on rates currently available to the Company for debt with
similar terms and remaining maturity.
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: Deferred income taxes are provided when revenues and expenses
are reported in different periods for financial statement and income tax
purposes.
In fiscal 1994 the Company adopted, effective October 1, 1993, Statement of
Financial Accounting Standards (SFAS) NO. 109, "Accounting for Income Taxes."
SFAS 109 requires the use of the liability method for computing deferred
income taxes. Under the new standard, deferred tax liabilities are recognized
for taxable temporary differences and deferred tax assets are recognized for
deductible temporary differences. A valuation allowance reduces deferred tax
assets if it is more likely than not that all, or some portion, will not be
realized. The adoption of SFAS 109 did not materially affect the Company's
financial condition or results of operations for the year ended September
30, 1994.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried on
the basis of cost. Depreciation of assets are provided in amounts sufficient
to depreciate the cost of related
23
<PAGE>
assets over their estimated useful lives. Assets have been depreciated using
an accelerated method for both financial statement and 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.
INTANGIBLE ASSETS: Intangible assets consist of goodwill and subscription
lists acquired in 1988, 1990 and 1995. These assets are being amortized over
ten years and five years, respectively.
DEFERRED SUBSCRIPTION REVENUE: Proceeds from the sale of subscriptions for
newspapers, court rule books or other publications are deferred as unexpired
subscriptions and are included in revenue over the duration of the
subscriptions.
SUPPLEMENTAL EMPLOYEE COMPENSATION PLAN: In fiscal 1987 the Company
implemented a Plan for Supplemental Employee Compensation that entitles an
employee to participate in pre-tax earnings of the Company for the lesser of
(i) ten years or (ii) as long as that employee remains employed or is in
retirement following employment to age 65. Non-negotiable certificates of
employee participant interests entitled employees to receive 9.55% (amounting
to about $363,000) of income before taxes and supplemental compensation
expenses in fiscal 1995, 8.58% (amounting to about $345,000) in fiscal 1994
and 7.69% (amounting to about $200,000) in fiscal 1993. In addition, the
employee holders of certificates are entitled to receive the same percentage
of pre-tax earnings in each of the next nine years subsequent to the year of
the grant of the certificate provided they remain employed or are in
retirement following employment to age 65.
TREASURY STOCK AND NET INCOME PER COMMON SHARE: As of September 30, 1995 and
1994 the Company owned 30,429 of the 599,409 units of a limited partnership
that has no known liabilities and owns as its sole asset 599,409 shares of
common stock of Daily Journal Corporation. This investment, at a total cost of
$351,000, is considered treasury stock and is excluded from the calculation of
weighted average shares. 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 1,620,406 for 1995, 1,623,687 for 1994 and
1,651,887 for 1993.
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $ 955,000 $1,011,000 $1,016,000
State.................................. 250,000 232,000 281,000
---------- ---------- ----------
1,205,000 1,243,000 1,297,000
---------- ---------- ----------
Deferred:
Federal................................ 155,000 211,000 (61,000)
State.................................. 40,000 46,000 (36,000)
---------- ---------- ----------
195,000 257,000 (97,000)
---------- ---------- ----------
$1,400,000 $1,500,000 $1,200,000
========== ========== ==========
</TABLE>
The deferred income tax provision which results from temporary differences in
the recognition of revenue and expense for tax and financial reporting
purposes, included (i) the reversal of amounts related to provisions for
accrued liabilities not deductible for tax purposes
24
<PAGE>
until paid of $133,000, $164,000 and ($60,000), (ii) the amounts related to
the book reserve for bad debts not deductible until the accounts receivable
become worthless for tax purposes of $163,000, $0 and $9,000, partially offset
by (iii) the amount of tax depreciation under book depreciation of $119,000,
$60,000 and $122,000 in 1995, 1994 and 1993, respectively.
At September 30, 1995, the Company had net operating loss carry-forwards of
approximately $215,000 that were generated by California Newspaper Service
Bureau, Inc. prior to its acquisition by the Company in April 1990 and are
available in segments over the next nine years to reduce future provisions for
income taxes.
The difference between the statutory federal income tax rate and the
Company's effective rate is summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.................... 34.0% 34.0% 34.0%
State franchise taxes (net of federal tax benefit)... 5.5 4.8 6.7
Other, net, including amortization of goodwill....... 1.2 2.0 9.1
---- ---- ----
Effective tax rate................................... 40.7% 40.8% 49.8%
==== ==== ====
</TABLE>
The Company's deferred income tax assets were comprised of the following at
September 30, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets attributable to:
Accrued liabilities, including vacation pay
accrual and litigation reserves not yet
deductible..................................... $ 650,000 $ 808,000
Bad debt reserves not yet deductible............ 260,000 433,000
Depreciation.................................... 140,000 --
Other, net...................................... 123,000 117,000
---------- ----------
$1,173,000 $1,358,000
========== ==========
</TABLE>
4. MANAGEMENT AGREEMENT, TERMINATION
During 1986 the management agreement with the former management company was
terminated due to the death of the president of the management company, who
had also served as the Company's president and director. The management
agreement provided for a termination fee of $500,000 payable by the Company
over a 10-year period commencing upon termination of the agreement by either
party for any reason. The management termination fee payable at September 30,
1995 of $35,000 is included in accrued liabilities.
5. ACQUISITIONS AND NOTES PAYABLE
During fiscal 1993, the Company purchased certain assets of a small newspaper
in the Palm Springs area for $10,000. During fiscal 1994, the Company acquired
certain assets of the Nevada Journal for $13,000. During fiscal 1995, the
Company acquired for cash The Public Record Corporation for about $463,000 and
the assets of a small newspaper including land and building in Phoenix,
Arizona for about $928,000. in connection with the acquisitions, the Company
assumed the liability for the unexpired subscriptions and entered into
employment, non-compete and consulting agreements with some of the former
owners. These acquisitions were accounted for as purchases. Proforma results
of operations have not been presented as the effects of these acquisitions
were not material to the Company's operating results.
25
<PAGE>
Notes payable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Term bank loan at prime rate plus 1% (9.75% at
September 30, 1995), payable in equal monthly
installments through January 1998, secured by
all assets except real estate including net
accounts receivable of over $6 million.......... $1,261,000 $1,796,000
Less current portion............................. (536,000) (532,000)
---------- ----------
$ 725,000 $1,264,000
========== ==========
</TABLE>
Aggregate annual maturities of notes payable are as follows: 1996--$536,000;
1997--$536,000; 1998--$189,000. Interest expense for the fiscal years 1995,
1994 and 1993 was $166,000, $199,000 and $240,000, respectively.
6. COMMITMENTS AND CONTINGENCIES
The Company owns office and printing facilities in Los Angeles, office and
storage facilities in Sacramento and Phoenix and leases space for its other
offices under operating leases which expire at various dates through 1998. The
Company is responsible for a portion of maintenance, insurance and property
tax expenses relating to leased property.
Future minimum rental payments required under the above operating leases at
September 30, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30 COMMITMENT
------------ ----------
<S> <C>
1996 384,000
1997 229,000
1998 4,000
--------
$617,000
========
</TABLE>
Rental expense for the fiscal year 1995, 1994 and 1993 was $445,000, $435,000
and $392,000, respectively.
Management has received information furnished by legal counsel on the current
stage of all outstanding legal proceedings and the development of these
matters to date. Based upon its review, it is the opinion of management that
adequate provision has been made for all reasonably estimable costs and that
the ultimate liability, if any, should not materially affect the consolidated
financial statements.
7. RESULTS OF OPERATIONS BY QUARTER (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1995
Revenues.............................. $8,126 $8,536 $9,213 $8,703
Costs and expenses.................... 7,062 7,691 8,203 8,181
Income before taxes................... 1,064 845 1,010 522
Net income............................ 639 505 575 322
Net income per share.................. .39 .31 .36 .20
1994
Revenues.............................. $7,976 $8,289 $8,627 $8,442
Costs and expenses.................... 7,292 7,312 7,497 7,557
Income before taxes................... 684 977 1,130 885
Net income............................ 384 577 655 560
Net income per share.................. .23 .35 .40 .36
</TABLE>
26
<PAGE>
DAILY JOURNAL CORPORATION
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS ACCOUNTS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND OFF LESS AT END
DESCRIPTION OF PERIOD EXPENSES RECOVERIES OF PERIOD
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1995
Allowance for doubtful accounts... $1,000,000 $294,000 $(694,000) $ 600,000
========== ======== ========= ==========
1994
Allowance for doubtful accounts... $1,000,000 $308,000 $(308,000) $1,000,000
========== ======== ========= ==========
1993
Allowance for doubtful accounts... $ 900,000 $463,000 $(363,000) $1,000,000
========== ======== ========= ==========
</TABLE>
27
<PAGE>
DAILY JOURNAL CORPORATION
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
-----------------------------
DESCRIPTION 1995 1994 1993
- ----------- --------- --------- ---------
<S> <C> <C> <C>
Maintenance and repairs........................... $320,000 $322,000 $320,000
Amortization of intangibles....................... $166,000 $333,000 $259,000
</TABLE>
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 573,000
<SECURITIES> 2,934,000
<RECEIVABLES> 6,531,000
<ALLOWANCES> 600,000
<INVENTORY> 117,000
<CURRENT-ASSETS> 11,484,000
<PP&E> 13,383,000
<DEPRECIATION> 5,461,000
<TOTAL-ASSETS> 20,752,000
<CURRENT-LIABILITIES> 11,650,000
<BONDS> 725,000
<COMMON> 16,000
0
0
<OTHER-SE> 8,361,000
<TOTAL-LIABILITY-AND-EQUITY> 20,752,000
<SALES> 34,262,000
<TOTAL-REVENUES> 34,578,000
<CGS> 0
<TOTAL-COSTS> 30,677,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 294,000
<INTEREST-EXPENSE> 166,000
<INCOME-PRETAX> 3,441,000
<INCOME-TAX> 1,400,000
<INCOME-CONTINUING> 2,041,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,041,000
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
