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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, 1996
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 6, 1996 the approximate aggregate market value of Daily
Journal Corporation's voting stock held by nonaffiliates was $20,800,000.
As of December 6, 1996 there were outstanding 1,627,870 shares of Common
Stock of Daily Journal Corporation.
----------------
Documents incorporated by reference: Portions of the Proxy Statement for the
Annual Meeting of Shareholders to be held during February 1997 are
incorporated by reference into Part III.
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Disclosure Regarding Forward-Looking Statements
This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this Form 10-K, including without
limitation those contained in Items 1 and 7, are forward-looking statements.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from those in the forward-looking
statements are disclosed in this Form 10-K, including without limitation in
conjunction with the forward-looking statements themselves.
PART I
Item 1. Business
The Daily Journal Corporation (the "Company") is primarily a gatherer and
distributor of information through its publications and specialized
information services. The Company also serves as 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 17 newspapers of general circulation. 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 newspapers are based in the following cities:
<TABLE>
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Newspaper Base of Publication
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<S> <C>
The Los Angeles Daily Journal Los Angeles, California
Daily Commerce Los Angeles, California
California Real Estate Journal Los Angeles, California
Nevada Journal Los Angeles, California
The San Francisco Daily Journal San Francisco, California
The Daily Recorder Sacramento, California
The Inter-City Express Oakland, California
Marin County Court Reporter San Rafael, California
Orange County Reporter Santa Ana, California
San Jose Post-Record San Jose, California
Sonoma County Daily Herald-Recorder Santa Rosa, California
San Diego Commerce San Diego, California
Business Journal Riverside, California
Washington Journal Seattle, Washington
Colorado Journal Denver, Colorado
Arizona Journal Phoenix, Arizona
The Record Reporter Phoenix, Arizona
</TABLE>
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 1893,
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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, 1996, the Los Angeles Daily Journal had approximately 13,800
paid subscribers and the San Francisco Daily Journal had approximately 6,600
paid subscribers as compared with a total circulation of 20,600 at September
30, 1995. In addition, The Daily Journals are sold on some newsstands. The
Daily Journals 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 professional community. The gross revenues generated directly
by The Daily Journals are attributable approximately 39% to subscriptions and
61% to the sale of advertising and other revenues. Revenues from The Daily
Journals constituted approximately 48% of the Company's total revenue during
fiscal 1996, 47% during fiscal 1995 and 46% during fiscal 1994.
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 summarizing all cases pending before the
U.S. Supreme Court and the California Supreme Court. 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 roundup of all newly
effective laws.
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 featuring important settlements and verdicts
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.
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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 1996. 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, Santa Clara, Alameda,
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 $420.
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,
which is distributed by mail, had approximately 1,100 paid subscribers at
September 30, 1996. The annual subscription rate is $109, 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 and a list of
all orders issued. Also included are summaries of federal and state supreme
court opinions. Special features include local verdicts and settlements, bar
exam results and articles on federal opinions. The semi-monthly Nevada Journal
as of September 30, 1996 had approximately 200 subscribers. The yearly
subscription rate is $120.
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 Southern California 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 1,400 paid subscriptions at September 30, 1996. A
subscription to the Daily Commerce is $192 per year, and it is distributed by
mail.
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 1,300 paid subscribers, all of whom
receive the paper by mail. The current subscription rate is $192 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
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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 $99.
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 every business day to approximately 600 paid and requester
subscribers. The annual subscription rate is $79.
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, all of whom 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 every business day 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, 1996 the
California Real Estate Journal had a circulation of approximately 1,900
subscribers. The annual subscription rate is $85. 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 3,000 subscribers. The annual subscription
rate is $53, 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 mailed twice
weekly with a total monthly distribution of about 16,000 paid and
complimentary copies. The annual subscription rate is $79.
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Colorado Journal. During January 1995 the Company acquired The Public Record
Corporation which publishes The Brief Times Reporter, The Code of Colorado
Regulations and three bankruptcy reporting publications. 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, and the full-text of the 10th Circuit Orders.
The Brief Times Reporter, which is now a supplement to the Colorado Journal,
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, 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, display and public notice advertising. The
Colorado Journal is mailed to approximately 900 paid subscribers and all of
the judges in Colorado. The annual subscription price is $254. The Fourth
Circuit Bankruptcy Court Reporter is mailed to 100 paid subscribers at $316 a
year, The Texas Bankruptcy Court Reporter is mailed to 155 paid subscribers at
$296 a year, and The Colorado Bankruptcy Court Reporter is mailed to 82 paid
subscribers at $131 a year. Each of these publications contains summaries and
full-text bankruptcy rulings by the governing federal court of appeals,
district courts, bankruptcy appellate panel and bankruptcy courts. Selected
state court opinions are also summarized. The Bankruptcy Court Reporters serve
the bankruptcy legal community throughout the Fourth Circuit, Texas and
Colorado. Periodic indices are published to assist the bars in referencing
applicable case law.
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
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 is mailed to 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 mailed free to the active members of the State Bar of
California, and the magazine also has approximately 900 paid subscribers. An
annual subscription to California Lawyer is $63. The termination of the
contract with the State Bar and the State Bar's new publication have 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 8,200 subscribers at September
30, 1996 paying $255 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
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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; and (6) Ventura, Santa Barbara and San Luis Obispo counties. In
addition, the Company publishes single-volume rules for the Federal District
Court in the Southern and Central Districts of California and California
Probate Rules. 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 $50 to $99 per year and volumes are normally updated or replaced
whenever there are rule changes. At September 30, 1996, the Company had
approximately 8,900 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
Colorado Journal.
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 1,100 subscribers to Judicial
Profiles receive updates on a quarterly basis. A subscription is $329 per
year.
The Company also provides computer on-line foreclosure information to about
600 customers. This service primarily provides distressed property
information, some of which also appears in some of the 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 placed notices and other forms of advertising with
adjudicated newspapers of general circulation, many of which are not owned by
the Company. The Company, first through CNSB and then directly, provided
ancillary services to customers such as posting of notices and auctioneering
services for trustee customers, but those services were discontinued in
October 1994. This has not had a material impact on the Company's operations.
CNSB was liquidated as of fiscal 1995 year end with its servicing subsequently
provided by a division of the Company.
Public notice advertising revenues and related advertising and other service
fees for the Company constituted about 37% of the Company's total revenues in
fiscal 1996 and 33% in each of the prior two 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
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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, improved
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. In 1996 the
California legislature defeated a bill that would have eliminated the
publishing requirements for trustee sales and fictitious business name
notices.
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 supplement and The Code of Colorado Regulations are
printed 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.
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.
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 1994 and 1995 the price of paper increased
substantially, and the Company was not able to pass on all the major paper
price increases to its advertisers and subscribers. In 1996 newsprint prices
declined. Paper prices may fluctuate substantially in the future, and this
could significantly impact income from operations.
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
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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. Recent
developments in the foreclosure industry which places trustee sale notices may
reduce the role of such agencies in the future. 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 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 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 except for Colorado which is nominal.
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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 court rules
services. While subscriptions to the multi-volume Court Rules have declined
during fiscal 1996, this was primarily 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.
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 330 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.
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, which was paid off during
fiscal 1996.
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 several years when the Company has
experienced substantial increases in postage and newsprint expenses and
additional costs related to acquisitions. During 1996 newsprint prices
declined. In addition, recent reductions in classified advertising lineage,
particularly in the "help-wanted" category, have prevented full recovery of
cost increases.
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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.
<TABLE>
<CAPTION>
Name Age Principal Occupation Last Five Years
---- --- ------------------------------------
<C> <C> <S>
Ira A. Marshall, Jr......... 73 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 square feet are 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.
See Note 5 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, 1996.
11
<PAGE>
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 1995
Quarter ended December 31, 1994.............................. 19 16.5
Quarter ended March 31, 1995................................. 20.25 16.5
Quarter ended June 30, 1995.................................. 24.5 18.5
Quarter ended September 30, 1995............................. 31 22.5
Fiscal 1996
Quarter ended December 31, 1995.............................. 49 31
Quarter ended March 31, 1996................................. 43.5 31
Quarter ended June 30, 1996.................................. 33 24.5
Quarter ended September 30, 1996............................. 31 25
</TABLE>
As of December 6, 1996 there were approximately 2,000 holders of record of
the Company's common stock, and the last trade was at $28.50 per share.
The Company did not declare or pay any dividends during fiscal 1995 or 1996.
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 1996 the
Company purchased 8,436 shares of Common Stock at an average price per share
of $24.02.
12
<PAGE>
Item 6. Selected Financial Data
The following sets forth selected financial data for the Company as of, and
for each of the five years ended September 30, 1996. Such data should be read
in conjunction with, and is qualified in its entirety by reference to, the
Company's consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," each included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Dollar amounts in thousands,
except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income
Data:
Revenues
Advertising..................... $21,423 $20,254 $18,801 $17,364 $17,293
Circulation..................... 10,951 10,686 10,031 9,413 8,889
Advertising service fees and
other.......................... 3,595 3,638 4,502 4,546 4,536
------- ------- ------- ------- -------
35,969 34,578 33,334 31,323 30,718
------- ------- ------- ------- -------
Costs and expenses
Salaries and employee benefits.. 14,438 14,202 13,539 13,631 13,177
Newsprint and printing ex-
penses......................... 3,886 4,084 3,362 3,278 3,768
Commissions and other outside
services....................... 4,793 4,553 4,197 3,874 3,484
Postage and delivery costs...... 2,364 2,461 2,314 2,408 2,563
Depreciation and amortization... 1,837 2,078 2,325 1,799 1,609
Other, including interest ex-
pense.......................... 4,286 3,759 3,921 3,922 4,689
------- ------- ------- ------- -------
31,604 31,137 29,658 28,912 29,290
------- ------- ------- ------- -------
Income before taxes............... 4,365 3,441 3,676 2,411 1,428
Provision for income taxes........ 1,800 1,400 1,500 1,200 700
------- ------- ------- ------- -------
Net income........................ $ 2,565 $ 2,041 $ 2,176 $ 1,211 $ 728
======= ======= ======= ======= =======
Net income per share.............. $ 1.59 $ 1.26 $ 1.34 $ .73 $ .42
======= ======= ======= ======= =======
<CAPTION>
September 30
------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital as conventionally
reported......................... $ 1,552 $ (166) $ (922) $(2,927) $(3,515)
Working capital before deductions
of specified item (1)............ 8,076 5,632 4,757 2,324 1,600
Total assets...................... 22,489 20,752 19,932 18,077 17,784
Management termination fee pay-
able............................. -- -- 20 55 90
Long term notes payable........... -- 725 1,264 2,300 2,840
Shareholders' equity.............. 10,728 8,377 6,489 4,313 3,548
</TABLE>
- --------
(1) Before deducting for each of the five years the liability for deferred
subscription revenue which will be earned within one year.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
1996 Compared to 1995
Revenues were $35,969,000 and $34,578,000 for fiscal years 1996 and 1995,
respectively. This increase of 4% is primarily attributable to the recent
acquisitions which accounted for additional revenues of $583,000 and to
subscription and advertising rate increases and additional public notice
lineage partially offset by a decrease in commercial advertising lineage.
During fiscal 1996, classified advertising revenues increased by $689,000
while display advertising revenues were down by $836,000. Public notice
advertising revenues increased by $1,202,000 primarily resulting from recent
acquisitions and increased trustee sale notices. The Company's smaller
newspapers, those other than the Los Angeles and San Francisco Daily Journals
("The Daily Journals"), accounted for about 85% of the total public notice
advertising revenues. Public notice advertising revenues and related
advertising and other service fees constituted about 37% of the Company's
total revenues. Circulation revenues increased an aggregate of $265,000 of
which $143,000 resulted from the recent acquisitions. The Daily Journals
accounted for about 62% of the Company's total circulation revenues, and their
circulation levels decreased slightly. The Rule Book and Judicial Profile
services generated about 23% of the total circulation revenues, with the other
newspapers and services accounting for the balance.
Costs and expenses increased by $468,000 (2%) from $31,137,000 to $31,605,000
including $829,000 from recent acquisitions. Personnel costs increased an
aggregate of $292,000 of which $299,000 resulted from recent acquisitions.
Newsprint and printing expenses decreased by $198,000 primarily because of
lower newsprint costs. Commissions and other outside services increased by
$240,000 primarily because of commissions paid on additional agency public
notice sales. Depreciation and amortization expenses decreased by $241,000
mainly due to more assets becoming fully depreciated and partially offset by
the amortization of costs of recent acquisitions. The increase in other
expenses of $527,000 primarily included additional legal and bad debt
expenses.
Pretax income in fiscal 1996 increased $924,000 (27%) to $4,365,000 from
$3,441,000 in fiscal 1995. The Company's smaller newspapers and its newspaper
representative, which specializes in public notice advertising, accounted for
about 52% of the Company's pretax income. Net income in fiscal 1996 was
$2,565,000 compared to $2,041,000 in the prior year. Net income per share
increased to $1.59 from $1.26.
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, those other than the Los Angeles and San
Francisco Daily Journals, account for about 77% of the total public notice
14
<PAGE>
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.
Liquidity and Capital Resources
During fiscal 1996, the Company's cash and cash equivalent position increased
by $520,000 and the investments in U.S. Treasury Bills increased by
$2,659,000. In addition, cash and cash equivalents were used to reduce notes
payable by $1,261,000, for the net purchase of capital assets of $1,811,000
including land of $705,000 and to purchase common stock for an aggregate
amount of $214,000. The cash provided by operating activities of $6,430,000
included a net increase in prepayments for subscriptions of $726,000. 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 subscription. As of September 30,
1996, the Company had working capital of $8,076,000 before deducting the
liability for deferred subscription revenues of $6,524,000 which will be
earned within one year. The cash and short-term investments in U.S. Treasury
Bills, aggregating about $6.7 million at September 30, 1996, and the current
level of cash provided by operating activities appear adequate to meet the
obligations of the Company.
The Company completed in 1990 a new Los Angeles office and printing facility.
This had been financed by a bank term loan which was paid off in 1996. In
April 1996 the Company purchased land near the Los Angeles facility, and after
improvements, this will be used, at least in the near term, for additional
parking.
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, 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 additional costs related to
acquisitions. In addition, reductions in classified advertising lineage in
recent years, particularly in the "help-wanted" category, have prevented full
recovery of cost increases.
15
<PAGE>
Item 8. Financial Statements and Supplementary Data
DAILY JOURNAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30
------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 1,093,000 $ 573,000
U.S. Treasury Bills, at cost plus discount earned... 5,593,000 2,934,000
Accounts receivable, less allowance for doubtful
accounts of $600,000............................... 5,433,000 6,531,000
Inventories......................................... 48,000 117,000
Prepaid expenses and other assets................... 329,000 378,000
Deferred income taxes............................... 817,000 951,000
----------- -----------
Total current assets.............................. 13,313,000 11,484,000
----------- -----------
Property, plant and equipment, at cost:
Land, buildings and improvements.................... 7,648,000 6,951,000
Furniture and office equipment...................... 4,885,000 4,884,000
Machinery and equipment............................. 1,447,000 1,548,000
----------- -----------
13,980,000 13,383,000
Less accumulated depreciation....................... (5,599,000) (5,461,000)
----------- -----------
8,381,000 7,922,000
Deferred income taxes................................ 157,000 222,000
Intangible assets, at cost, less accumulated
amortization of
$749,000 and $263,000............................... 638,000 1,124,000
----------- -----------
$22,489,000 $20,752,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 2,775,000 $ 2,490,000
Accrued liabilities................................. 2,462,000 2,826,000
Notes payable....................................... -- 536,000
Deferred subscription revenue....................... 6,524,000 5,798,000
----------- -----------
Total current liabilities......................... 11,761,000 11,650,000
----------- -----------
Notes payable........................................ -- 725,000
----------- -----------
Commitments and contingencies (note 5)............... -- --
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; 1,637,870 shares and 1,646,306 shares,
respectively, outstanding.......................... 16,000 16,000
Other paid-in capital............................... 2,082,000 2,093,000
Retained earnings................................... 8,981,000 6,619,000
Less 30,429 treasury shares, at cost................ (351,000) (351,000)
----------- -----------
Total shareholders' equity........................ 10,728,000 8,377,000
----------- -----------
$22,489,000 $20,752,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended September 30
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Advertising................................ $21,423,000 $20,254,000 $18,801,000
Circulation................................ 10,951,000 10,686,000 10,031,000
Advertising service fees and other......... 3,595,000 3,638,000 4,502,000
----------- ----------- -----------
35,969,000 34,578,000 33,334,000
----------- ----------- -----------
Costs and expenses:
Salaries and employee benefits............. 14,438,000 14,202,000 13,539,000
Newsprint and printing expenses............ 3,886,000 4,084,000 3,362,000
Commissions and other outside services..... 4,793,000 4,553,000 4,197,000
Postage and delivery expenses.............. 2,364,000 2,461,000 2,314,000
Depreciation and amortization.............. 1,837,000 2,078,000 2,325,000
Other, including interest expense.......... 4,286,000 3,759,000 3,921,000
----------- ----------- -----------
31,604,000 31,137,000 29,658,000
----------- ----------- -----------
Income before taxes......................... 4,365,000 3,441,000 3,676,000
Provision for income taxes.................. 1,800,000 1,400,000 1,500,000
----------- ----------- -----------
Net income.................................. $ 2,565,000 $ 2,041,000 $ 2,176,000
=========== =========== ===========
Net income per share........................ $ 1.59 $ 1.26 $ 1.34
=========== =========== ===========
</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,
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
Net income.............. 2,565,000 2,565,000
Purchase of common
stock.................. (11,000) (203,000) (214,000)
------- ---------- ---------- --------- -----------
Balance at September 30,
1996................... $16,000 $2,082,000 $8,981,000 $(351,000) $10,728,000
======= ========== ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30
------------------------------------
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 2,565,000 $2,041,000 $ 2,176,000
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization.......... 1,837,000 2,078,000 2,325,000
Deferred income taxes.................. 199,000 185,000 150,000
Discount earned on U.S. Treasury
Bills................................. (35,000) (13,000) --
Loss (gain) on sale of capital assets.. 1,000 (2,000) (43,000)
Changes in assets and liabilities:
(Increase) decrease in current assets
Accounts receivable, net.............. 1,098,000 (457,000) (1,020,000)
Inventories........................... 69,000 (23,000) 1,000
Prepaid expenses and other assets..... 49,000 (110,000) (755,000)
Increase (decrease) in current liabili-
ties
Accounts payable...................... 285,000 (207,000) 132,000
Accrued liabilities................... (364,000) (425,000) 629,000
Income taxes payable.................. -- -- (436,000)
Deferred subscription revenue......... 726,000 119,000 428,000
----------- ---------- -----------
Cash provided by operating activi-
ties............................... 6,430,000 3,186,000 3,587,000
----------- ---------- -----------
Cash flows from investing activities:
Net investments in U.S. Treasury Bills.. (2,624,000) (1,442,000) (1,465,000)
Capital expenditures including acquisi-
tions.................................. (1,811,000) (2,531,000) (1,532,000)
----------- ---------- -----------
Cash used for investing activities.. (4,435,000) (3,973,000) (2,997,000)
----------- ---------- -----------
Cash flows from financing activities:
Principal payments under management ter-
mination fee payable and notes pay-
able................................... (1,261,000) (555,000) (1,074,000)
Purchase of common stock................ (214,000) (153,000) --
----------- ---------- -----------
Cash used for financing activities.. (1,475,000) (708,000) (1,074,000)
----------- ---------- -----------
Increase (decrease) in cash and cash
equivalents............................. 520,000 (1,495,000) (484,000)
Cash and cash equivalents:
Beginning of year....................... 573,000 2,068,000 2,552,000
----------- ---------- -----------
End of year............................. $ 1,093,000 $ 573,000 $ 2,068,000
=========== ========== ===========
Interest paid during year................ $ 102,000 $ 169,000 $ 202,000
Income taxes paid during year............ $ 1,604,000 $1,302,000 $ 1,525,000
</TABLE>
See accompanying notes to consolidated financial statements.
18
<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. In addition, the Company serves as a newspaper
representative specializing in public notice advertising. 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 wholly-owned subsidiary. All
significant intercompany 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.
Fair Value of Financial Instruments: The carrying amounts of cash,
investments in U.S. Treasury Bills, accounts receivable and accounts payable
approximate fair value because of the short maturity of these financial
instruments.
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.
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.
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 normally 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 10.59% (amounting
to about $518,000) of income before taxes and supplemental compensation
expenses in fiscal 1996, 9.55% (amounting to about $363,000) in fiscal 1995
and 8.53% (amounting to about $345,000) in
19
<PAGE>
fiscal 1994. 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, 1996 and
1995 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 1,612,766 for 1996, 1,620,406 for 1995 and
1,623,687 for 1994.
Use of Estimates: The presentation of the Company's financial statements in
conformity with generally accepted accounting principles 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.
Accounting for Long-Lived assets: In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of". SFAS No. 121 establishes accounting standards
for the impairment of long-lived assets to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In addition, SFAS No. 121 requires that certain
long-lived assets be reported at the lower of the carrying amount or fair
value less cost to sell. The Company is adopting SFAS No. 121 effective
October 1, 1996, as required. The Company does not expect the adoption of SFAS
No. 121 to have a significant impact on its financial position or results of
operations.
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................. $1,252,000 $ 955,000 $1,011,000
State................................... 324,000 250,000 232,000
---------- ---------- ----------
1,576,000 1,205,000 1,243,000
---------- ---------- ----------
Deferred:
Federal................................. 166,000 155,000 211,000
State................................... 58,000 40,000 46,000
---------- ---------- ----------
224,000 195,000 257,000
---------- ---------- ----------
$1,800,000 $1,400,000 $1,500,000
========== ========== ==========
</TABLE>
The deferred income tax provision which results from temporary differences in
the recognition of revenue and expense for tax and financial reporting
purposes, includes (i) the amounts related to provisions for accrued
liabilities not deductible for tax purposes until paid of $167,000, $133,000
and $164,000, (ii) the amounts related to the allowance for doubtful accounts
not deductible until the accounts receivable become worthless for tax purposes
of $163,000 in 1995, partially offset by (iii) the amount of tax depreciation
and amortization under (over) book depreciation of ($42,000), $119,000 and
$60,000 in 1996, 1995 and 1994, respectively.
20
<PAGE>
At September 30, 1996, the Company had net operating loss carry-forwards of
approximately $191,000 that are available in segments over the next eight
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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.................... 34.0% 34.0% 34.0%
State franchise taxes (net of federal tax benefit)... 5.8 5.5 4.8
Other, net, including amortization of goodwill....... 1.4 1.2 2.0
---- ---- ----
Effective tax rate................................... 41.2% 40.7% 40.8%
==== ==== ====
</TABLE>
The Company's deferred income tax assets were comprised of the following at
September 30, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
Deferred tax assets attributable to:
Accrued liabilities, including vacation pay ac-
crual and litigation reserves not yet deduct-
ible............................................. $479,000 $ 650,000
Bad debt reserves not yet deductible.............. 260,000 260,000
Depreciation and amortization..................... 97,000 140,000
Other, net........................................ 138,000 123,000
-------- ----------
$974,000 $1,173,000
======== ==========
</TABLE>
4. ACQUISITIONS AND NOTES PAYABLE
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.
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30
--------------------
1996 1995
--------- ----------
<S> <C> <C>
Term bank loan at prime rate plus 1%................ $ -- $1,261,000
Less current portion................................ -- (536,000)
--------- ----------
$ -- $ 725,000
========= ==========
</TABLE>
Interest expense for the fiscal years 1996, 1995 and 1994 was $102,000,
$166,000 and $199,000, respectively.
5. 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 1999. The
Company is responsible for a portion of maintenance, insurance and property
tax expenses relating to leased property.
21
<PAGE>
Future minimum rental payments required under the above operating leases at
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Year ending
September 30 Commitment
------------ ----------
<S> <C>
1997...................... 344,000
1998...................... 51,000
1999...................... 34,000
--------
$429,000
========
</TABLE>
Rental expenses for the fiscal years 1996, 1995 and 1994 were $456,000,
$445,000 and $435,000, 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.
6. 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> <C>
1996
Revenues.............................. $8,362 $8,708 $9,626 $9,273
Costs and expenses.................... 7,440 7,696 8,336 8,132
Income before taxes................... 922 1,012 1,290 1,141
Net income............................ 592 567 765 641
Net income per share.................. .37 .35 .47 .40
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
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
22
<PAGE>
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 6, 1997 (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.
23
<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>
<C> <S> <C>
(1) Consolidated Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheet at September 30, 1996 and 1995
Consolidated Statement of Income for each of the three years in the
period ended September 30, 1996
Consolidated Statement of Changes in Shareholders' Equity for each
of the three years in the period ended September 30, 1996
Consolidated Statement of Cash Flows for each of the three years in
the period
ended September 30, 1996
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules for the three years
ended
September 30, 1996:
VIII Valuation and Qualifying Accounts
X Supplementary Income Statement Information
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(3) Exhibits
3.1 Articles of Incorporation of Daily Journal Corporation, as amended.
(1)
3.2 Bylaws of Daily Journal Corporation. (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. (1)(*)
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. (1)
10.8 Lease dated March 12, 1987 between Daily Journal Company and
Calfox, Inc., as Managing Agent, including Amendments One through
Four thereto. (2)
21.0 Subsidiary of Daily Journal Corporation. (2)
27 Financial Data Schedule.
</TABLE>
- --------
(1) Filed as an Exhibit bearing the same number to the Annual Report of Form
10-K on the Company for the year ended September 30, 1993.
(2) Filed as an Exhibit bearing the same number to the Annual Report of Form
10-K on 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, 1996.
24
<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, 1996
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,
- ------------------------------------- Board 1996
Charles T. Munger
/s/ Gerald L. Salzman President, December 12,
- ------------------------------------- Treasurer, Chief 1996
Gerald L. Salzman Financial Officer,
Principal
Accounting Officer
and Director
/s/ J.P. Guerin Director December 12,
- ------------------------------------- 1996
J.P. Guerin
Director
- -------------------------------------
Donald W. Killian, Jr.
Director
- -------------------------------------
George C. Good
25
<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 24 present fairly, in all
material respects, the financial position of the Daily Journal Corporation and
its wholly owned subsidiaries at September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1996, 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 5, 1996
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>
1996
Allowance for doubtful accounts... $ 600,000 $732,278 $(732,278) $ 600,000
========== ======== ========= ==========
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
========== ======== ========= ==========
</TABLE>
27
<PAGE>
DAILY JOURNAL CORPORATION
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Charged to Costs and Expenses
-----------------------------------
Description 1996 1995 1994 1993
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Maintenance and repairs..................... $303,000 $320,000 $322,000 $320,000
Amortization of intangibles................. $486,000 $166,000 $333,000 $259,000
</TABLE>
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,093,000
<SECURITIES> 5,593,000
<RECEIVABLES> 6,033,000
<ALLOWANCES> 600,000
<INVENTORY> 48,000
<CURRENT-ASSETS> 13,313,000
<PP&E> 13,980,000
<DEPRECIATION> 5,599,000
<TOTAL-ASSETS> 22,489,000
<CURRENT-LIABILITIES> 11,761,000
<BONDS> 0
0
0
<COMMON> 16,000
<OTHER-SE> 10,712,000
<TOTAL-LIABILITY-AND-EQUITY> 22,489,000
<SALES> 35,680,000
<TOTAL-REVENUES> 35,969,000
<CGS> 0
<TOTAL-COSTS> 30,781,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 732,000
<INTEREST-EXPENSE> 92,000
<INCOME-PRETAX> 4,365,000
<INCOME-TAX> 1,800,000
<INCOME-CONTINUING> 2,565,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,565,000
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
</TABLE>
