<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X
___ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________________
Commission File Number 0-14665
DAILY JOURNAL CORPORATION
------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 95-4133299
- ------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
355 South Grand Ave., 34th floor
Los Angeles, California 90071-1560
- ------------------------ ----------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (213) 624-7715
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class
- ---------------------------- Outstanding at July 31, 1997
Common Stock, par value $ .01 per share ----------------------------
1,621,870 shares
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DAILY JOURNAL CORPORATION
INDEX
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Page Nos.
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PART I Financial Information
Item 1. Financial statements
Consolidated Balance Sheet -
June 30, 1997 and September 30, 1996 3
Consolidated Statement of Income -
Three months ended June 30, 1997 and 1996 4
Consolidated Statement of Income - 5
Nine months ended June 30, 1997 and 1996
Consolidated Statement of Cash Flows -
Nine months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II Other Information
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 10
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PART I
Item 1. Financial Statements
DAILY JOURNAL CORPORATION - CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
June 30 September 30
1997 1996
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 196,000 $ 1,093,000
U.S. Treasury Bills, at cost plus discount earned 8,907,000 5,593,000
Accounts receivable, less allowance for
doubtful accounts of $700,000 and $600,000 5,929,000 5,433,000
Inventories 53,000 48,000
Prepaid expenses and other assets 363,000 329,000
Deferred income taxes 897,000 817,000
------------ ------------
Total current assets 16,345,000 13,313,000
------------ ------------
Property, plant and equipment, at cost:
Land, buildings and improvements 7,655,000 7,648,000
Furniture and office equipment 5,303,000 4,885,000
Machinery and equipment 1,420,000 1,447,000
------------ ------------
14,378,000 13,980,000
Less accumulated depreciation (6,301,000) (5,599,000)
------------ ------------
8,077,000 8,381,000
Deferred income taxes 313,000 157,000
Intangible assets, at cost, less accumulated
amortization of $363,000 and $749,000 310,000 638,000
------------ ------------
$ 25,045,000 $ 22,489,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,162,000 $ 2,775,000
Accrued liabilities 2,808,000 2,462,000
Income taxes payable 339,000 -
Deferred subscription revenue 6,212,000 6,524,000
------------ ------------
Total current liabilities 12,521,000 11,761,000
------------ ------------
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; 1,621,870 shares and 1,637,870
shares respectively, outstanding 16,000 16,000
Other paid-in capital 2,062,000 2,082,000
Retained earnings 10,797,000 8,981,000
Less 30,429 treasury shares at cost (351,000) (351,000)
------------ ------------
Total shareholders' equity 12,524,000 10,728,000
------------ ------------
$ 25,045,000 $ 22,489,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
3 of 10
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<TABLE>
<CAPTION>
Three months
ended June 30
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1997 1996
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Revenues:
Advertising $5,573,000 $5,864,000
Circulation 2,915,000 2,811,000
Advertising service fees and other 917,000 951,000
---------- ----------
9,405,000 9,626,000
---------- ----------
Costs and expenses:
Salaries and employee benefits 3,589,000 3,534,000
Newsprint and printing expenses 907,000 995,000
Commissions and other outside services 1,128,000 1,381,000
Postage and delivery expenses 596,000 588,000
Depreciation and amortization 654,000 353,000
Other, including interest expense 1,078,000 1,485,000
---------- ----------
7,952,000 8,336,000
---------- ----------
Income before taxes 1,453,000 1,290,000
Provision for income taxes 580,000 525,000
---------- ----------
Net income $ 873,000 $ 765,000
========== ==========
Weighted average number of common
shares outstanding 1,591,441 1,615,823
Net income per share $ .55 $ .47
</TABLE>
See accompanying notes to consolidated financial statements.
4 of 10
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
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<CAPTION>
Nine months
ended June 30
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1997 1996
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<S> <C> <C>
Revenues:
Advertising $16,047,000 $15,976,000
Circulation 8,590,000 8,139,000
Advertising service fees and other 2,398,000 2,581,000
----------- -----------
27,035,000 26,696,000
----------- -----------
Costs and expenses:
Salaries and employee benefits 10,826,000 10,617,000
Newsprint and printing expenses 2,482,000 2,984,000
Commissions and other outside services 3,253,000 3,639,000
Postage and delivery expenses 1,753,000 1,762,000
Depreciation and amortization 1,311,000 1,070,000
Other, including interest expense 3,676,000 3,400,000
----------- -----------
23,301,000 23,472,000
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Income before taxes 3,734,000 3,224,000
Provision for income taxes 1,490,000 1,300,000
----------- -----------
Net income $ 2,244,000 $ 1,924,000
=========== ===========
Weighted average number of common
shares outstanding 1,595,401 1,615,859
Net income per share $1.41 $1.19
</TABLE>
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended June 30
---------------------------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $2,244,000 $ 1,924,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 1,311,000 1,070,000
Deferred income taxes (236,000) 79,000
Discount earned on U.S. Treasury Bills (133,000) (59,000)
Changes in assets and liabilities:
(Increase) decrease in current assets
Accounts receivable, net (496,000) (17,000)
Inventories (5,000) (50,000)
Prepaid expenses and other assets (34,000) 83,000
Increase (decrease) in current liabilities
Accounts payable 387,000 (287,000)
Accrued liabilities 346,000 (373,000)
Income taxes payable 339,000 73,000
Deferred subscription revenue (312,000) 554,000
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Cash provided by operating activities 3,411,000 2,997,000
---------- -----------
Cash flows from investing activities:
Net investments in U.S. Treasury Bills (3,181,000) (971,000)
Capital expenditures (679,000) (1,334,000)
------------ ----------
Cash used for investing activities (3,860,000) (2,305,000)
------------ ----------
Cash flows from financing activities:
Principal payments of notes payable - (725,000)
Purchase of common stock (448,000) (160,000)
----------- ----------
Cash used for financing activities (448,000) (885,000)
----------- ----------
Increase (decrease) in cash and cash equivalents (897,000) (193,000)
Cash and cash equivalents:
Beginning of period 1,093,000 573,000
---------- ------------
End of period $ 196,000 $ 380,000
========== ============
Interest paid during period $ - $ 92,000
Income taxes paid during period $1,297,000 $ 1,061,000
</TABLE>
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - The Corporation and Operations:
The Company publishes newspapers in California, Washington, Arizona,
Colorado and Nevada and the California Lawyer magazine and produces several
specialized information services. It 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 a newspaper for the Colorado
legal profession. Essentially all of the Company's operations are based in
California, Arizona, Colorado and Washington.
Note 2 - Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly its financial position as of
June 30, 1997 and September 30, 1996, the results of operations for the three-
and nine-month periods ended June 30, 1997 and 1996 and its cash flows for the
nine months ended June 30, 1997 and 1996.
The results of operations for the nine months ended June 30, 1997 and
1996 are not necessarily indicative of the results to be expected for the full
year.
The consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
7 of 10
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues were $27,035,000 and $26,696,000 for the nine months ended June 30,
1997 and 1996, respectively. This increase of 1% is primarily attributable to
subscription and advertising rate increases and partially offset by a decrease
in public notice advertising lineage.
During the nine months ended June 30, 1997, classified advertising revenues
increased by $444,000 and display advertising revenues were up by $186,000.
Public notice advertising revenues decreased by $559,000 primarily resulting
from decreased trustee sale notices, and we anticipate this decline to continue
during this fiscal year. The Company's smaller newspapers, those other than the
Los Angeles and San Francisco Daily Journals ("The Daily Journals"), accounted
for about 87% 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 an
aggregate of $451,000. 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 24% of
the total circulation revenues, with the other newspapers and services
accounting for the balance.
Costs and expenses decreased by $171,000 (1%) from $23,472,000 to $23,301,000.
Personnel costs increased an aggregate of $209,000 (2%) primarily due to the
normal annual salary adjustments. Newsprint and printing expenses decreased by
$502,000 primarily because of lower newsprint costs. Commissions and other
outside services decreased by $386,000 primarily because of less agency sales.
Depreciation and amortization expenses increased by $241,000 mainly due to the
accelerated write-off of intangible assets and computer assets. The increase in
other expenses of $276,000 includes additional legal expenses.
Pretax income in the nine months ended June 30, 1997 increased $510,000 (16%)
to $3,734,000 from $3,224,000 in fiscal 1997. The Company's smaller newspapers
and its newspaper representative, which specializes in public notice
advertising, accounted for about 47% of the Company's pretax income. Net income
was $2,244,000 compared to $1,924,000 in the comparible prior year period. Net
income per share increased to $1.41 from $1.19.
Liquidity and Capital Resources
During the nine months ended June 30, 1997, the Company's cash and cash
equivalent position decreased by $897,000 and the investments in U.S. Treasury
Bills increased by $3,314,000. In addition, cash and cash equivalents were used
for the purchase of capital assets of $679,000 and to purchase common stock for
an aggregate amount of $448,000. The cash provided by operating activities of
$3,411,000 included a net decrease in prepayments for subscriptions of $312,000.
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. The cash flows
from operating activities increased by $414,000 during the nine months ended
June 30, 1997 primarily from increased net income and increased depreciation and
amortization costs. As of June 30, 1997, the Company had working capital of
$10,036,000 before deducting the liability for deferred subscription revenues of
$6,212,000 which will be earned within one year. The cash and short-term
investments in U.S. Treasury Bills, aggregating about $9 million at June 30,
1997, and the current level of cash provided by operating activities appear
adequate to meet the obligations of the Company.
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DAILY JOURNAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
On August 25, 1995, Jeffrey Barge, an individual, filed a lawsuit
captioned Barge v. Daily Journal Corporation, et al., in the Supreme Court of
the State of New York. The action subsequently was removed to federal court and
transferred to the United States District Court for the Central District of
California. The complaint alleges, among other things, that Mr. Salzman, the
Company's President, had conversations with Mr. Barge about buying a newspaper
Mr. Barge owned in Seattle, Washington prior to the date on which the Company
started a competing newspaper in the Seattle area, and that in doing so, Mr.
Salzman caused the Company to misuse certain confidential information allegedly
provided to Mr. Salzman by Mr. Barge and to engage in unfair competition. Mr.
Barge also alleges that various present and former employees of the Company
caused defamatory statements to be made about Mr. Barge. The complaint seeks,
among other things, damages in the amount of approximately $4.6 million. The
Company believes that the action is without merit and is defending it
vigorously.
9 of 10
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DAILY JOURNAL CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(A) Exhibits - none
27 Financial Data Schedule
(B) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements 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
(Registrant)
/s/ Gerald L. Salzman
Gerald L. Salzman
Chief Financial Officer
DATE: August 4, 1997
10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 196,000
<SECURITIES> 8,907,000
<RECEIVABLES> 6,629,000
<ALLOWANCES> 700,000
<INVENTORY> 53,000
<CURRENT-ASSETS> 16,345,000
<PP&E> 14,378,000
<DEPRECIATION> 6,301,000
<TOTAL-ASSETS> 25,045,000
<CURRENT-LIABILITIES> 12,521,000
<BONDS> 0
0
0
<COMMON> 16,000
<OTHER-SE> 12,508,000
<TOTAL-LIABILITY-AND-EQUITY> 25,045,000
<SALES> 26,704,000
<TOTAL-REVENUES> 27,035,000
<CGS> 0
<TOTAL-COSTS> 23,102,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 200,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,734,000
<INCOME-TAX> 1,490,000
<INCOME-CONTINUING> 2,244,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,244,000
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
</TABLE>
