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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, 1998
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
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(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
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(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, 1998
- --------------------------------------- ----------------------------
Common Stock, par value $ .01 per share 1,618,870 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, 1998 and September 30, 1997 3
Consolidated Statement of Income -
Three months ended June 30, 1998 and 1997 4
Consolidated Statement of Income -
Nine months ended June 30, 1998 and 1997 5
Consolidated Statement of Cash Flows -
Nine months ended June 30, 1998 and 1997 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 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
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 282,000 $ 273,000
U.S. Treasury Bills, at cost plus discount earned 12,519,000 9,832,000
Accounts receivable, less allowance for
doubtful accounts of $700,000 6,260,000 6,073,000
Inventories 57,000 58,000
Prepaid expenses and other assets 123,000 160,000
Deferred income taxes 908,000 1,036,000
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Total current assets 20,149,000 17,432,000
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Property, plant and equipment, at cost:
Land, buildings and improvements 7,572,000 7,763,000
Furniture and office equipment 5,666,000 5,468,000
Machinery and equipment 1,355,000 1,342,000
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14,593,000 14,573,000
Less accumulated depreciation (6,975,000) (6,451,000)
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7,618,000 8,122,000
Deferred income taxes 308,000 231,000
Intangible assets, at cost, less accumulated
amortization of $673,000 and $491,000 - 182,000
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$28,075,000 $25,967,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,531,000 $ 2,947,000
Accrued liabilities 2,949,000 3,046,000
Income taxes 403,000 274,000
Deferred subscription revenue 6,533,000 6,402,000
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Total current liabilities 12,416,000 12,669,000
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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; 1,618,870 shares and 1,621,870 shares,
respectively, outstanding 16,000 16,000
Other paid-in capital 2,058,000 2,062,000
Retained earnings 13,936,000 11,571,000
Less 30,429 treasury shares at cost (351,000) (351,000)
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Total shareholders' equity 15,659,000 13,298,000
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$28,075,000 $25,967,000
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</TABLE>
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended June 30
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1998 1997
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<S> <C> <C>
Revenues:
Advertising $5,529,000 $5,573,000
Circulation 2,907,000 2,915,000
Advertising service fees and other 1,096,000 917,000
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9,532,000 9,405,000
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Costs and expenses:
Salaries and employee benefits 3,893,000 3,589,000
Newsprint and printing expenses 854,000 907,000
Commissions and other outside services 1,101,000 1,128,000
Postage and delivery expenses 592,000 596,000
Depreciation and amortization 489,000 654,000
Other 949,000 1,078,000
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7,878,000 7,952,000
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Income before taxes 1,654,000 1,453,000
Provision for income taxes 635,000 580,000
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Net income $1,019,000 $ 873,000
========== ==========
Weighted average number of common
shares outstanding 1,590,716 1,591,441
Net income per share $ .64 $ .55
</TABLE>
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended June 30
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1998 1997
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<S> <C> <C>
Revenues:
Advertising $15,902,000 $16,047,000
Circulation 8,567,000 8,590,000
Advertising service fees and other 2,779,000 2,398,000
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27,248,000 27,035,000
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Costs and expenses:
Salaries and employee benefits 11,579,000 10,826,000
Newsprint and printing expenses 2,551,000 2,482,000
Commissions and other outside services 3,142,000 3,253,000
Postage and delivery expenses 1,714,000 1,753,000
Depreciation and amortization 1,234,000 1,311,000
Other 2,908,000 3,676,000
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23,128,000 23,301,000
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Income before taxes 4,120,000 3,734,000
Provision for income taxes 1,645,000 1,490,000
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Net income $ 2,475,000 $ 2,244,000
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Weighted average number of common
shares outstanding 1,591,199 1,595,401
Net income per share $ 1.55 $ 1.41
</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
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1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,475,000 $ 2,244,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 1,234,000 1,311,000
Deferred income taxes 51,000 (236,000)
Discount earned on U.S. Treasury Bills (179,000) (133,000)
Gains on sales of capital assets (106,000)
Changes in assets and liabilities:
(Increase) decrease in current assets
Accounts receivable, net (187,000) (496,000)
Inventories 1,000 (5,000)
Prepaid expenses and other assets 37,000 (34,000)
Increase (decrease) in current liabilities
Accounts payable (416,000) 387,000
Accrued liabilities (97,000) 346,000
Income taxes 129,000 339,000
Deferred subscription revenue 131,000 (312,000)
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Cash provided by operating activities 3,073,000 3,411,000
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Cash flows from investing activities:
Net investments in U.S. Treasury Bills (2,508,000) (3,181,000)
Capital expenditures, net (442,000) (679,000)
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Cash used for investing activities (2,950,000) (3,860,000)
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Cash flows from financing activities:
Purchase of common stock (114,000) (448,000)
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Cash used for financing activities (114,000) (448,000)
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Increase (decrease) in cash and cash equivalents 9,000 (897,000)
Cash and cash equivalents:
Beginning of period 273,000 1,093,000
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End of period $ 282,000 $ 196,000
============ ============
Income taxes paid during period $ 1,464,000 $ 1,297,000
</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 publishes The Code of Colorado
Regulations and 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.
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, 1998 and September 30, 1997, the results of operations for the three-
and nine-month periods ended June 30, 1998 and 1997 and its cash flows for the
nine months ended June 30, 1998 and 1997.
The results of operations for the nine months ended June 30, 1998 and 1997
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, 1997.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues were $27,248,000 and $27,035,000 for the nine months ended June 30,
1998 and 1997, respectively. This increase of less than 1% was primarily
attributable to increases in classified and display advertising lineage and
advertising and subscription rate increases partially offset by a decrease in
public notice advertising revenues.
During the nine months ended June 30, 1998, classified advertising revenues
increased by $470,000, and display advertising revenues were up by $903,000.
Public notice advertising revenues decreased by $1,518,000 primarily resulting
from decreased foreclosure notices, and the Company anticipates this trend to
continue. The Company's smaller newspapers, those other than the Los Angeles
and San Francisco Daily Journals ("The Daily Journals"), accounted for about 91%
of the total public notice advertising revenues. Public notice advertising
revenues and related advertising and other service fees constituted about 28% of
the Company's total revenues. Circulation revenues decreased an aggregate of
$23,000. The Daily Journals accounted for about 64% 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 decreased by $173,000 (1%) from $23,301,000 to $23,128,000.
Personnel costs increased an aggregate of $753,000 (7%) primarily due to the
normal annual salary adjustments. Newsprint and printing expenses increased by
$69,000 primarily because of the increase in newsprint prices. Commissions and
other outside services decreased by $111,000 primarily because of less agency
foreclosure notice sales. The decrease in other expenses of $768,000 primarily
resulted from reduced legal and bad debt expenses.
Pretax income in the nine months ended June 30, 1998 increased by $386,000
(10%) to $4,120,000 from $3,734,000 in fiscal 1997. The Company's smaller
newspapers and its newspaper representative, which specializes in public notice
advertising, accounted for about 36% of the Company's pretax income. Net income
was $2,475,000 compared to $2,244,000 in the comparable prior year period. Net
income per share increased to $1.55 from $1.41.
Liquidity and Capital Resources
During the nine months ended June 30, 1998, the Company's cash and cash
equivalent position increased by $9,000, and the investments in U.S. Treasury
Bills increased by $2,687,000. In addition, cash and cash equivalents were used
for the purchase of net capital assets of $442,000, including the development of
a parking lot for employees in Los Angeles, and to purchase the Company's common
stock for an aggregate amount of $114,000. The land and building in Phoenix
were sold for $428,000. The gain on this sale of $106,000 about offset the
write-off of the unamortized intangible assets acquired in the purchase of The
Record Reporter which has moved to leased facilities. The cash provided by
operating activities of $3,073,000 included a net increase in prepayments for
subscriptions of $131,000. 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 decreased by
$338,000 during the nine months ended June 30 1998 primarily from the decrease
in current liabilities. As of June 30, 1998, the Company had working capital of
$14,266,000 before deducting the liability for deferred subscription revenues of
$6,533,000 which will be earned within one year. The cash and short-term
investments in U.S. Treasury Bills, aggregating about $12.8 million at June 30,
1998, and the current level of cash provided by
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operating activities appear adequate to meet the obligations of the Company. In
June 1998 the Company agreed to purchase land and building adjacent to our new
parking lot in Los Angeles for $515,000. After some remodeling this will be
used in lieu of the current leased production facilities with the excess space
to be rented to a local printing company.
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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 3, 1998
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 282,000
<SECURITIES> 12,519,000
<RECEIVABLES> 6,960,000
<ALLOWANCES> 700,000
<INVENTORY> 57,000
<CURRENT-ASSETS> 20,149,000
<PP&E> 14,593,000
<DEPRECIATION> 6,975,000
<TOTAL-ASSETS> 28,075,000
<CURRENT-LIABILITIES> 12,416,000
<BONDS> 0
0
0
<COMMON> 16,000
<OTHER-SE> 15,643,000
<TOTAL-LIABILITY-AND-EQUITY> 28,075,000
<SALES> 26,798,000
<TOTAL-REVENUES> 27,248,000
<CGS> 0
<TOTAL-COSTS> 23,128,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 153,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,120,000
<INCOME-TAX> 1,645,000
<INCOME-CONTINUING> 2,475,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,475,000
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
