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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 December 31, 1999
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
- ----------------------- ----------
(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, 2000
- --------------------------------------- -------------------------------
Common Stock, par value $ .01 per share 1,598,413 shares
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DAILY JOURNAL CORPORATION
INDEX
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Page Nos.
PART I Financial Information
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Item 1. Financial statements
Consolidated Balance Sheet -
December 31, 1999 and September 30, 1999 3
Consolidated Statement of Income -
Three months ended December 31, 1999 and 1998 4
Consolidated Statement of Cash Flows -
Three months ended December 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
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)
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December 31 September 30
1999 1999
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ASSETS
Current assets:
Cash and cash equivalents $ 682,000 $ 181,000
U.S. Treasury Bills, at cost plus discount earned 8,877,000 9,175,000
Accounts receivable, less allowance for
doubtful accounts of $800,000 7,084,000 8,471,000
Inventories 53,000 45,000
Prepaid expenses and other assets 308,000 329,000
Deferred income taxes 694,000 801,000
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Total current assets 17,698,000 19,002,000
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Property, plant and equipment, at cost:
Land, buildings and improvements 8,114,000 8,104,000
Furniture, office equipment and computer software 9,952,000 9,361,000
Machinery and equipment 1,364,000 1,364,000
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19,430,000 18,829,000
Less accumulated depreciation (7,624,000) (7,170,000)
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11,806,000 11,659,000
Deferred income taxes 180,000 382,000
Intangible assets, at cost, less accumulated amortization
of $102,000 and $74,000, respectively 454,000 482,000
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$ 30,138,000 $ 31,525,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,313,000 $ 3,025,000
Accrued liabilities 1,421,000 1,997,000
Income taxes 127,000 122,000
Deferred subscription revenue and other revenues 7,482,000 7,818,000
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Total current liabilities 11,343,000 12,962,000
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Minority Interest 815,000 895,000
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Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized and no shares issued - -
Common stock, $.01 par value, 5,000,000 shares
authorized; 1,598,413 shares and 1,601,816 shares,
respectively, outstanding 16,000 16,000
Other paid-in capital 2,032,000 2,036,000
Retained earnings 16,549,000 16,233,000
Less 37,544 treasury shares, at cost (617,000) (617,000)
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Total shareholders' equity 17,980,000 17,668,000
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$ 30,138,000 $ 31,525,000
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See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
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Three months
ended December 31
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1999 1998
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Revenues:
Advertising $ 4,666,000 $ 4,877,000
Circulation 2,996,000 3,033,000
Information systems and services 500,000 -
Advertising service fees and other 758,000 870,000
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8,920,000 8,780,000
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Costs and expenses:
Salaries and employee benefits 4,430,000 3,825,000
Newsprint and printing expenses 712,000 874,000
Commissions and other outside services 1,192,000 1,018,000
Postage and delivery expenses 537,000 588,000
Depreciation and amortization 483,000 234,000
Other 896,000 989,000
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8,250,000 7,528,000
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Income before taxes 670,000 1,252,000
Provision for income taxes 315,000 500,000
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Net income, including minority interest 355,000 752,000
Minority interest in net loss of subsidiary (20%) 80,000 -
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Net income $ 435,000 $ 752,000
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Weighted average number of common
shares outstanding 1,561,494 1,584,183
Net income per share $ .28 $ .47
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See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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Three months
ended December 31
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1999 1998
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Cash flows from operating activities:
Net income $ 435,000 $ 752,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 483,000 234,000
Minority interest in consolidated subsidiary (80,000) -
Deferred income taxes 309,000 224,000
Discount earned on U.S. Treasury Bills (98,000) (189,000)
Changes in assets and liabilities:
(Increase) decrease in current assets
Accounts receivable, net 1,387,000 497,000
Inventories (8,000) (21,000)
Prepaid expenses and other assets 21,000 (212,000)
Increase (decrease) in current liabilities
Accounts payable (712,000) (183,000)
Accrued liabilities (576,000) (893,000)
Income taxes 5,000 277,000
Deferred subscription and other revenues (336,000) (29,000)
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Cash provided by operating activities 830,000 457,000
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Cash flows from investing activities:
Net sales in U.S. Treasury Bills 396,000 767,000
Capital expenditures (601,000) (699,000)
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Cash (used) provided for investing activities (205,000) 68,000
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Cash flows from financing activities:
Purchase of common stock (124,000) -
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Cash used for financing activities (124,000) -
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Increase in cash and cash equivalents 501,000 525,000
Cash and cash equivalents:
Beginning of period 181,000 462,000
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End of period $ 682,000 $ 987,000
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Income taxes paid (refunded) during period $ - $ (1,000)
</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.
SUSTAIN Technologies, Inc., an 80% owned subsidiary and consolidated since it
was acquired in January 1999, provides the SUSTAIN(R) family of products which
consist of technlogies and applications to enable justice agencies to automate
their operations. Essentially all of the Company's operations are based in
California, Arizona, Colorado, Nevada, Washington and Virginia.
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, 1999 and September 30, 1999, the results of operations for the
three month periods ended December 31, 1999 and 1998 and its cash flows for the
three months ended December 31, 1999 and 1998.
The results of operations for the three months ended December 31, 1999 and
1998 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, 1999.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues were $8,920,000 and $8,780,000 for the three months ended December
31, 1999 and 1998, respectively. This increase of 1% is primarily attributable
to the acquisition of 80% of Sustain in January 1999 which accounted for
additional revenues of $531,000 and to advertising and subscription rate
increases, partially offset primarily by the decline in revenues from publishing
foreclosure notices.
During the three months ended December 31, 1999, display advertising revenues
were down by $20,000 while classified advertising revenues increased by $52,000.
Public notice advertising revenues decreased by $243,000 primarily resulting
from decreased foreclosure notices, and the Company anticipates this decline to
continue because of a lower volume. 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 24% of the Company's total revenues. Circulation
revenues decreased an aggregate of $37,000. The Daily Journals accounted for
about 69% of the Company's total circulation revenues, and their circulation
levels decreased slightly. The Rule Book and Judicial Profile services
generated about 20% of the total circulation revenues, with the other newspapers
and services accounting for the balance.
Costs and expenses increased by $722,000 (10%) from $7,528,000 to $8,250,000.
Sustain accounted for additional expenses of $1,092,000, including $208,000 for
the amortization of Daily Journal's purchased computer software and goodwill.
Total personnel costs were $4,430,000, representing an increase of $605,000
(16%) of which $531,000 were from Sustain. Newsprint and printing expenses
decreased by $162,000 (19%) primarily because of the decrease in newsprint
prices. Commissions and other outside services increased by $174,000 (17%)
primarily due to Sustain's additional outside service expenses of $177,000
partially offset by the decline in commission expenses because of fewer agency
commissionable foreclosure notice sales. Depreciation and amortization expenses
increased by $249,000 primarily as a result of the amortization of Sustain's
assets. The decrease in other expenses of $93,000 (9%) primarily resulted from
less legal expenses.
Pretax income in the three months ended December 31, 1999 decreased by
$582,000 (46%) to $670,000 from $1,252,000 in fiscal 1999, primarily because of
Sustain's loss. The Company's smaller newspapers and its newspaper
representative, which specializes in public notice advertising, accounted for
about 38% of the Company's pretax income. Net income was $435,000 compared to
$752,000 in the comparable prior year period. Net income per share decreased to
$.28 from $.47.
Liquidity and Capital Resources
During the three months ended December 31, 1999, the Company's cash and cash
equivalent position increased by $501,000, and the investments in U.S. Treasury
Bills decreased by $298,000. Cash and cash equivalents were used for the
purchase of capital assets and to purchase common stock for an aggregate amount
of $725,000. The cash provided by operating activities of $830,000 included a
net decrease in prepayments for subscriptions and others of $336,000. Proceeds
from the sale of subscriptions from newspapers, court rule books and other
publications and for software maintenance and other services are booked as
deferred revenue and are included in earned revenue only when the services are
provided. The
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cash flows from operating activities increased by $373,000 during
the three months ended December 31, 1999 primarily because of the decrease in
accounts receivable. As of December 31, 1999, the Company had working capital
of $13,837,000 before deducting the liability for deferred subscription revenues
and other revenues of $7,482,000 which will be earned within one year. The cash
and short-term investments in U.S. Treasury Bills, aggregating about $9.6
million at December 31, 1999, and the current level of cash provided by
operating activities appear adequate to meet the obligations of the Company.
The Company did not experience any significant problems related to Year 2000
issues, and Year 2000 issues did not cause any significant operational or
financial problems for the Company. Due, however, to the inherent uncertainty
of the Year 2000 problem, the Company cannot ensure that it will not be impacted
by any Year 2000 related problems in the future.
Disclosure regarding Forward-Looking Statements
This Report 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. Certain statements contained in
this document, including without limitation those contained under the captions
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," are forward-looking statements. Forward-looking statements include
statements which are predictive in nature, which depend upon or refer to future
events or conditions, which include words such as "expects", "anticipates",
"intends", "plans", "believes", "estimates", or similar expressions. In
addition, any statements concerning future financial performance (including
future revenues, earnings or growth rates), ongoing business strategies or
prospects, and possible future Company actions, which may be provided by
management, are also 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
Report, including without limitation in conjunction with the forward-looking
statements themselves. The Company has no specific intention to update these
forward-looking statements.
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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. On January
14, 2000, judgment was entered in favor of the Company on all of Mr. Barge's
claims. Mr. Barge may appeal this judgment, but no appeal has yet been filed.
In the event such an appeal is made, the Company intends to contest the appeal
vigorously.
On November 22, 1996, Metropolitan News Company, a Los Angeles company that
publishes various small newspapers, filed a lawsuit against the Company and
Charles T. Munger in Los Angeles County Superior Court. The lawsuit alleges
that the Company violated certain provisions of the California Business and
Professions Code concerning below-cost sales, geographic price discrimination,
and unfair competition. Metropolitan News sued for injunctive relief and
monetary damages. On July 14, 1999, a jury returned a verdict in favor of the
Company on all of Metropolitan News' claims. In addition, on July 16, 1999, the
court held that Metropolitan News' claims failed as a matter of law.
Metropolitan News has appealed this judgment, but no hearing date for the appeal
has been set. The Company intends to contest the appeal vigorously.
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DAILY JOURNAL CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(A) Exhibits - The following exhibit is filed herewith:
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 14, 2000
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<ARTICLE> 5
<LEGEND>
This schedule containes 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 682,000
<SECURITIES> 8,877,000
<RECEIVABLES> 7,884,000
<ALLOWANCES> 800,000
<INVENTORY> 53,000
<CURRENT-ASSETS> 17,698,000
<PP&E> 19,430,000
<DEPRECIATION> 7,624,000
<TOTAL-ASSETS> 30,138,000
<CURRENT-LIABILITIES> 11,343,000
<BONDS> 0
0
0
<COMMON> 16,000
<OTHER-SE> 17,964,000
<TOTAL-LIABILITY-AND-EQUITY> 30,138,000
<SALES> 8,804,000
<TOTAL-REVENUES> 8,920,000
<CGS> 0
<TOTAL-COSTS> 8,250,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 670,000
<INCOME-TAX> 315,000
<INCOME-CONTINUING> 435,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 435,000
<EPS-BASIC> .28
<EPS-DILUTED> .28
</TABLE>
