<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 December 31, 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 January 31, 1998
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Common Stock, par value $ .01 per share 1,621,870 shares
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DAILY JOURNAL CORPORATION
INDEX
Page Nos.
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PART I Financial Information
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Item 1. Financial statements
Consolidated Balance Sheet -
December 31, 1997 and September 30, 1997 3
Consolidated Statement of Income -
Three months ended December 31, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Three months ended December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II Other Information
Item 1. Legal Proceedings 8
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
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PART I
Item 1. Financial Statements
DAILY JOURNAL CORPORATION - CONSOLIDATED BALANCE SHEET
(Unaudited)
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<CAPTION>
December 31 September 30
1997 1997
------------------------ ------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 59,000 $ 273,000
U.S. Treasury Bills, at cost plus discount earned 10,396,000 9,832,000
Accounts receivable, less allowance for
doubtful accounts of $700,000 5,581,000 6,073,000
Inventories 83,000 58,000
Prepaid expenses and other assets 231,000 160,000
Deferred income taxes 911,000 1,036,000
------------ ------------
Total current assets 17,261,000 17,432,000
------------ ------------
Property, plant and equipment, at cost:
Land, buildings and improvements 7,763,000 7,763,000
Furniture and office equipment 5,277,000 5,468,000
Machinery and equipment 1,338,000 1,342,000
------------ ------------
14,378,000 14,573,000
Less accumulated depreciation (6,381,000) (6,451,000)
------------ ------------
7,997,000 8,122,000
Deferred income taxes 153,000 231,000
Intangible assets, at cost, less accumulated
amortization of $479,000 and $491,000 163,000 182,000
------------ ------------
$ 25,574,000 $ 25,967,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,597,000 $ 2,947,000
Accrued liabilities 2,204,000 3,046,000
Income taxes 551,000 274,000
Deferred subscription revenue 6,192,000 6,402,000
------------ ------------
Total current liabilities 11,544,000 12,669,000
------------ ------------
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, outstanding 16,000 16,000
Other paid-in capital 2,062,000 2,062,000
Retained earnings 12,303,000 11,571,000
Less 30,429 treasury shares at cost (351,000) (351,000)
------------ ------------
Total shareholders' equity 14,030,000 13,298,000
------------ ------------
$ 25,574,000 $ 25,967,000
============ ============
</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 December 31
-----------------
1997 1996
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<S> <C> <C>
Revenues:
Advertising $4,968,000 $5,139,000
Circulation 2,906,000 2,950,000
Advertising service fees and other 813,000 774,000
---------- ----------
8,687,000 8,863,000
---------- ----------
Costs and expenses:
Salaries and employee benefits 3,782,000 3,604,000
Newsprint and printing expenses 849,000 792,000
Commissions and other outside services 1,033,000 1,141,000
Postage and delivery expenses 600,000 620,000
Depreciation and amortization 417,000 368,000
Other 789,000 1,180,000
---------- ----------
7,470,000 7,705,000
---------- ----------
Income before taxes 1,217,000 1,158,000
Provision for income taxes 485,000 460,000
---------- ----------
Net income $ 732,000 $ 698,000
========== ==========
Weighted average number of common
shares outstanding 1,591,441 1,600,050
Net income per share $.46 $.44
</TABLE>
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended December 31
-----------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 732,000 $ 698,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 417,000 368,000
Deferred income taxes 203,000 (51,000)
Discount earned on U.S. Treasury Bills (157,000) (105,000)
Changes in assets and liabilities:
(Increase) decrease in current assets
Accounts receivable, net 492,000 1,183,000
Inventories (25,000) 8,000
Prepaid expenses and other assets (71,000) 32,000
Increase (decrease) in current liabilities
Accounts payable (350,000) (573,000)
Accrued liabilities (842,000) (319,000)
Income taxes 277,000 416,000
Deferred subscription revenue (210,000) (21,000)
---------- ------------
Cash provided by operating activities 466,000 1,636,000
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Cash flows from investing activities:
Net investments in U.S. Treasury Bills (407,000) (1,235,000)
Capital expenditures (273,000) (187,000)
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Cash used for investing activities (680,000) (1,422,000)
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Cash flows from financing activities:
Purchase of common stock - (280,000)
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Cash used for financing activities - (280,000)
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(Decrease) increase in cash and cash equivalents (214,000) (66,000)
Cash and cash equivalents:
Beginning of period 273,000 1,093,000
---------- ------------
End of period $ 59,000 $ 1,027,000
========== ============
Income taxes paid during period $ 4,000 $ 5,000
</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
December 31, 1997 and September 30, 1997, the results of operations for the
three-month periods ended December 31, 1997 and 1996 and its cash flows for the
three months ended December 31, 1997 and 1996.
The results of operations for the three months ended December 31, 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, 1997.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues were $8,687,000 and $8,863,000 for the three months ended December
31, 1997 and 1996, respectively. This decrease of 2% is primarily due to the
decline in revenues from publishing foreclosure notices, partially offset by a
small increase in classified advertising lineage and the subscription and
advertising rate increases.
During the three months ended December 31, 1997, classified advertising
revenues increased by $219,000 and display advertising revenues were up by
$42,000. Public notice advertising revenues decreased by $432,000 primarily
resulting from decreased foreclosure notices, and we anticipate this decline to
continue. The Company's smaller newspapers, those other than the Los Angeles
and San Francisco Daily Journals ("The Daily Journals"), accounted for about 92%
of the total public notice advertising revenues. Public notice advertising
revenues and related advertising and other service fees constituted about 30% of
the Company's total revenues. Circulation revenues decreased an aggregate of
$44,000. 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 $235,000 (3%) from $7,705,000 to $7,470,000.
Personnel costs increased an aggregate of $178,000 (5%) primarily due to the
normal annual salary adjustments. Newsprint and printing expenses increased by
$57,000 primarily because of the increase in newsprint prices. Commissions and
other outside services decreased by $108,000 primarily because of less agency
foreclosure notice sales. The decrease in other expenses of $391,000 primarily
resulted from reduced legal and bad debt expenses.
Pretax income in the three months ended December 31, 1997 increased by $59,000
(5%) to $1,217,000 from $1,158,000 in fiscal 1997. The Company's smaller
newspapers and its newspaper representative, which specializes in public notice
advertising, accounted for about 28% of the Company's pretax income. Net income
was $732,000 compared to $698,000 in the comparable prior year period. Net
income per share increased to $.46 from $.44.
Liquidity and Capital Resources
During the three months ended December 31, 1997, the Company's cash and
cash equivalent position decreased by $214,000 and the investments in U.S.
Treasury Bills increased by $564,000. In addition, cash and cash equivalents
were used for the purchase of capital assets of $273,000. The cash provided by
operating activities of $466,000 included a net decrease in prepayments for
subscriptions of $210,000. 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
$1,170,000 during the three months ended December 31 1997 primarily from
decreases in accounts receivables and current liabilities. As of December 31,
1997, the Company had working capital of $11,909,000 before deducting the
liability for deferred subscription revenues of $6,192,000 which will be earned
within one year. The cash and short-term investments in U.S. Treasury Bills,
aggregating about $10.5 million at December 31, 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.
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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: February 12, 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
QULIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 59,000
<SECURITIES> 10,396,000
<RECEIVABLES> 6,281,000
<ALLOWANCES> 700,000
<INVENTORY> 83,000
<CURRENT-ASSETS> 17,261,000
<PP&E> 14,378,000
<DEPRECIATION> 6,381,000
<TOTAL-ASSETS> 25,574,000
<CURRENT-LIABILITIES> 11,544,000
<BONDS> 0
0
0
<COMMON> 16,000
<OTHER-SE> 14,014,000
<TOTAL-LIABILITY-AND-EQUITY> 25,574,000
<SALES> 8,545,000
<TOTAL-REVENUES> 8,687,000
<CGS> 0
<TOTAL-COSTS> 7,442,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,217,000
<INCOME-TAX> 485,000
<INCOME-CONTINUING> 732,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 732,000
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
