<PAGE>
SECURITIES AND EXCHANGE COMMISISON
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 March 31, 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
------------------------------------------
(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 April 30, 1998
- --------------------------------------- -----------------------------
Common Stock, par value $ .01 per share 1,621,870 shares
1 of 10
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DAILY JOURNAL CORPORATION
INDEX
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Page Nos.
<S> <C>
PART I Financial Information
Item 1. Financial statements
Consolidated Balance Sheet -
March 31, 1998 and September 30, 1997 3
Consolidated Statement of Income -
Three months ended March 31, 1998 and 1997 4
Consolidated Statement of Income -
Six months ended March 31, 1998 and 1997 5
Consolidated Statement of Cash Flows -
Six months ended March 31, 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 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2 of 10
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PART I
Item 1. Financial Statements
DAILY JOURNAL CORPORATION - CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31 September 30
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 356,000 $ 273,000
U.S. Treasury Bills, at cost plus discount earned 11,115,000 9,832,000
Accounts receivable, less allowance for
doubtful accounts of $700,000 5,987,000 6,073,000
Inventories 57,000 58,000
Prepaid expenses and other assets 206,000 160,000
Deferred income taxes 909,000 1,036,000
----------- -----------
Total current assets 18,630,000 17,432,000
----------- -----------
Property, plant and equipment, at cost:
Land, buildings and improvements 7,882,000 7,763,000
Furniture and office equipment 5,546,000 5,468,000
Machinery and equipment 1,355,000 1,342,000
----------- -----------
14,783,000 14,573,000
Less accumulated depreciation (6,692,000) (6,451,000)
----------- -----------
8,091,000 8,122,000
Deferred income taxes 276,000 231,000
Intangible assets, at cost, less accumulated
amortization of $526,000 and $491,000 147,000 182,000
----------- -----------
$27,144,000 $25,967,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,935,000 $ 2,947,000
Accrued liabilities 2,658,000 3,046,000
Income taxes 401,000 274,000
Deferred subscription revenue 6,396,000 6,402,000
----------- -----------
Total current liabilities 12,390,000 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; 1,621,870 shares, outstanding 16,000 16,000
Other paid-in capital 2,062,000 2,062,000
Retained earnings 13,027,000 11,571,000
Less 30,429 treasury shares at cost (351,000) (351,000)
----------- -----------
Total shareholders' equity 14,754,000 13,298,000
----------- -----------
$27,144,000 $25,967,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3 0f 10
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31
----------------
1998 1997
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<S> <C> <C>
Revenues:
Advertising $ 5,405,000 $ 5,280,000
Circulation 2,754,000 2,725,000
Advertising service fees and other 870,000 762,000
----------- -----------
9,029,000 8,767,000
----------- -----------
Costs and expenses:
Salaries and employee benefits 3,904,000 3,633,000
Newsprint and printing expenses 848,000 783,000
Commissions and other outside services 1,008,000 984,000
Postage and delivery expenses 522,000 537,000
Depreciation and amortization 328,000 289,000
Other 1,170,000 1,418,000
---------- ----------
7,780,000 7,644,000
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Income before taxes 1,249,000 1,123,000
Provision for income taxes 525,000 450,000
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Net income $ 724,000 $ 673,000
========== ==========
Weighted average number of common
shares outstanding 1,591,441 1,594,652
Net income per share $ .45 $ .42
</TABLE>
See accompanying notes to consolidated financial statements.
4 of 10
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six months
ended March 31
----------------
1998 1997
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<S> <C> <C>
Revenues:
Advertising $10,373,000 $10,474,000
Circulation 5,660,000 5,675,000
Advertising service fees and
other 1,683,000 1,481,000
----------- -----------
17,716,000 17,630,000
----------- -----------
Costs and expenses:
Salaries and employee benefits 7,686,000 7,237,000
Newsprint and printing
expenses 1,697,000 1,575,000
Commissions and other outside
services 2,041,000 2,125,000
Postage and delivery expenses 1,122,000 1,157,000
Depreciation and amortization 745,000 657,000
Other 1,959,000 2,598,000
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15,250,000 15,349,000
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Income before taxes 2,466,000 2,281,000
Provision for income taxes 1,010,000 910,000
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Net income $ 1,456,000 $ 1,371,000
=========== ===========
Weighted average number of common
shares outstanding 1,591,441 1,597,381
Net income per share $ .91 $ $.86
</TABLE>
See accompanying notes to consolidated financial statements.
5 0f 10
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months
ended March 31
---------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $1,456,000 $1,371,000
Adjustments to reconcile net
income to net cash provided
by operations:
Depreciation and amortization 745,000 657,000
Deferred income taxes 82,000 (63,000)
Discount earned on U.S. Treasury Bills (80,000) (52,000)
Changes in assets and liabilities:
(Increase) decrease in current assets
Accounts receivable, net 86,000 1,210,000
Inventories 1,000 (2,000)
Prepaid expenses and other assets (46,000) (18,000)
Increase (decrease) in current liabilities
Accounts payable (12,000) (561,000)
Accrued liabilities (388,000) (98,000)
Income taxes 127,000 233,000
Deferred subscription revenue (6,000) 9,000
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Cash provided by operating activities 1,965,000 2,686,000
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Cash flows from investing activities:
Net investments in U.S. Treasury Bills (1,203,000) (2,704,000)
Capital expenditures (679,000) (516,000)
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Cash used for investing activities (1,882,000) (3,220,000)
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Cash flows from financing activities:
Purchase of common stock - (448,000)
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Cash used for financing activities: - (448,000)
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Increase (decrease) in cash and cash equivalents 83,000 (982,000)
Cash and cash equivalents:
Beginning of period 273,000 1,093,000
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End of period $ 356,000 $ 111,000
========== ==========
Income taxes paid during period $ 801,000 $ 650,000
</TABLE>
See accompanying notes to consolidated financial statements.
6 of 10
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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
March 31, 1998 and September 30, 1997, the results of operations for the three-
and six-month periods ended March 31, 1998 and 1997 and its cash flows for the
six months ended March 31, 1998 and 1997.
The results of operations for the six months ended March 31, 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.
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 $17,716,000 and $17,630,000 for the six months ended
March 31, 1998 and 1997, respectively. This increase of less than 1% is
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 six months ended March 31, 1998, classified advertising
revenues increased by $385,000, and display advertising revenues were up by
$128,000. Public notice advertising revenues decreased by $614,000 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 30% of the Company's total revenues. Circulation revenues decreased an
aggregate of $15,000. 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 $99,000 (1%) from $15,349,000 to
$15,250,000. Personnel costs increased an aggregate of $449,000 (6%) primarily
due to the normal annual salary adjustments. Newsprint and printing expenses
increased by $122,000 primarily because of the increase in newsprint prices.
Commissions and other outside services decreased by $84,000 primarily because of
less agency foreclosure notice sales. The decrease in other expenses of
$639,000 primarily resulted from reduced legal and bad debt expenses.
Pretax income in the six months ended March 31, 1998 increased by
$185,000 (8%) to $2,466,000 from $2,281,000 in fiscal 1997. The Company's
smaller newspapers and its newspaper representative, which specializes in public
notice advertising, accounted for about 35% of the Company's pretax income. Net
income was $1,456,000 compared to $1,371,000 in the comparable prior year
period. Net income per share increased to $.91 from $.86.
Liquidity and Capital Resources
During the six months ended March 31, 1998, the Company's cash and
cash equivalent position increased by $83,000, and the investments in U.S.
Treasury Bills increased by $1,283,000. In addition, cash and cash equivalents
aggregating $679,000 were used for the purchase of capital assets including the
development of a parking lot for employees in Los Angeles. The cash provided by
operating activities of $1,965,000 included a net decrease in prepayments for
subscriptions of $6,000. 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
$721,000 during the six months ended March 31 1998 primarily from decreases in
accounts receivable and current liabilities. As of March 31, 1998, the Company
had working capital of $12,636,000 before deducting the liability for deferred
subscription revenues of $6,396,000 which will be earned within one year. The
cash and short-term investments in U.S. Treasury Bills, aggregating about $11.5
million at March 31, 1998, and the current level of cash provided by operating
activities appear adequate to meet the obligations of the Company.
8 of 10
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DAILY JOURNAL CORPORATION
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The Company's annual meeting was held on February 9, 1998. The
matters submitted to a vote of security holders were the election of directors
and the ratification of the appointment of Price Waterhouse LLP as independent
accountants for the Company for the current fiscal year.
Each of the nominees to the Board of directors was elected. The
following votes were received as to the election of the board of directors:
<TABLE>
<CAPTION>
Votes
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Withheld Broker
Nominee's Name For Authority Non-Votes
- -------------- --- --------- ---------
<S> <C> <C> <C>
Charles T. Munger 1,399,453 1,493 0
J. P. Guerin 1,399,543 1,493 0
Gerald L. Salzman 1,399,543 1,493 0
Donald W. Killian, Jr. 1,399,453 1,493 0
George C. Good 1,399,203 1,493 0
</TABLE>
Price Waterhouse was ratified as the Company's independent accountants
with 1,394,921 votes in favor, 435 votes against, 5,680 abstentions and no
broker non-votes.
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
Chief Financial Officer
DATE: May 8, 1998
10 of 10
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<PAGE>
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 356,000
<SECURITIES> 11,115,000
<RECEIVABLES> 6,687,000
<ALLOWANCES> 700,000
<INVENTORY> 57,000
<CURRENT-ASSETS> 18,630,000
<PP&E> 14,783,000
<DEPRECIATION> 6,692,000
<TOTAL-ASSETS> 27,144,000
<CURRENT-LIABILITIES> 12,390,000
<BONDS> 0
0
0
<COMMON> 16,000
<OTHER-SE> 14,738,000
<TOTAL-LIABILITY-AND-EQUITY> 27,144,000
<SALES> 17,427,000
<TOTAL-REVENUES> 17,716,000
<CGS> 0
<TOTAL-COSTS> 15,150,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 100,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,466,000
<INCOME-TAX> 1,010,000
<INCOME-CONTINUING> 1,456,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,456,000
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
