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 March 31, 2000
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, 2000
- --------------------------------------- ------------------------------
Common Stock, par value $ .01 per share 1,583,506 shares
1
DAILY JOURNAL CORPORATION
INDEX
Page Nos.
PART I Financial Information
Item 1. Financial statements
Consolidated Balance Sheet -
March 31, 2000 and September 30, 1999 3
Consolidated Statement of Income -
Three months ended March 31, 2000 and 1999 4
Consolidated Statement of Income -
Six months ended March 31, 2000 and 1999 5
Consolidated Statement of Cash Flows -
Six months ended March 31, 2000 and 1999 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 10
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
2
PART I
Item 1. Financial Statements
DAILY JOURNAL CORPORATION - CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31 September 30
2000 1999
--------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 860,000 $ 181,000
U.S. Treasury Bills, at cost plus discount earned 7,408,000 9,175,000
Accounts receivable, less allowance for
doubtful accounts of $800,000 8,330,000 8,471,000
Inventories 54,000 45,000
Prepaid expenses and other assets 240,000 329,000
Deferred income taxes 602,000 801,000
------------ ------------
Total current assets 17,494,000 19,002,000
------------ ------------
Property, plant and equipment, at cost:
Land, buildings and improvements 8,246,000 8,104,000
Furniture, office equipment and computer software 12,097,000 9,361,000
Machinery and equipment 1,364,000 1,364,000
------------ ------------
21,707,000 18,829,000
Less accumulated depreciation (8,309,000) (7,170,000)
------------ ------------
13,398,000 11,659,000
Deferred income taxes 326,000 382,000
Intangible assets, at cost, less accumulated amortization
of $130,000 and $74,000, respectively 426,000 482,000
------------ ------------
$ 31,644,000 $ 31,525,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,239,000 $ 3,025,000
Accrued liabilities 1,706,000 1,997,000
Income taxes - 122,000
Deferred subscription revenue and other revenues 7,318,000 7,818,000
------------ ------------
Total current liabilities 13,263,000 12,962,000
------------ ------------
Minority Interest 499,000 895,000
------------ ------------
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; 1,583,506 shares and 1,601,816 shares,
respectively, outstanding 16,000 16,000
Other paid-in capital 2,013,000 2,036,000
Retained earnings 16,642,000 16,233,000
Less 43,271 and 37,544 treasury shares, respectively, at cost (789,000) (617,000)
------------ ------------
Total shareholders' equity 17,882,000 17,668,000
------------ ------------
$ 31,644,000 $ 31,525,000
============ ============
See accompanying notes to consolidated financial statements.
3
DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three months
ended March 31
--------------
2000 1999
------------ -----------
Revenues:
Advertising $5,201,000 $5,446,000
Circulation 2,770,000 2,806,000
Information systems and services 1,074,000 295,000
Advertising service fees and other 885,000 766,000
---------- ----------
9,930,000 9,313,000
---------- ----------
Costs and expenses:
Salaries and employee benefits 4,527,000 4,115,000
Newsprint and printing expenses 784,000 775,000
Commissions and other outside services 1,339,000 1,145,000
Postage and delivery expenses 520,000 542,000
Depreciation and amortization 712,000 417,000
Other 1,131,000 1,229,000
---------- ----------
9,013,000 8,223,000
---------- ----------
Income before taxes 917,000 1,090,000
Provision for income taxes 425,000 440,000
---------- ----------
Net income, including minority interest 492,000 650,000
Minority interest in net loss of subsidiary 54,000 36,000
---------- ----------
Net income $ 546,000 $ 686,000
========== ==========
Weighted average number of common
shares outstanding - basic and diluted 1,558,849 1,584,147
Basic and diluted net income per share $ .35 $ .44
See accompanying notes to consolidated financial statements.
4
DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Six months
ended March 31
--------------
2000 1999
----------- -----------
Revenues:
Advertising $ 9,867,000 $10,283,000
Circulation 5,766,000 5,839,000
Information systems and services 1,574,000 295,000
Advertising service fees and other 1,643,000 1,676,000
----------- -----------
18,850,000 18,093,000
----------- -----------
Costs and expenses:
Salaries and employee benefits 8,957,000 7,940,000
Newsprint and printing expenses 1,496,000 1,649,000
Commissions and other outside services 2,531,000 2,163,000
Postage and delivery expenses 1,057,000 1,130,000
Depreciation and amortization 1,195,000 651,000
Other 2,027,000 2,218,000
----------- -----------
17,263,000 15,751,000
----------- -----------
Income before taxes 1,587,000 2,342,000
Provision for income taxes 740,000 940,000
----------- -----------
Net income, including minority interest 847,000 1,402,000
Minority interest in net loss of subsidiary 134,000 36,000
----------- -----------
Net income $ 981,000 $ 1,438,000
=========== ===========
Weighted average number of common
shares outstanding - basic and diluted 1,560,179 1,584,165
Basic and diluted net income per share $ .63 $ .91
See accompanying notes to consolidated financial statements.
5
DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six months
ended March 31
--------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 981,000 $ 1,438,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 1,195,000 651,000
Minority interest in consolidated subsidiary (134,000) (36,000)
Deferred income taxes 255,000 171,000
Discount earned on U.S. Treasury Bills (105,000) (76,000)
Changes in assets and liabilities:
(Increase) decrease in current assets:
Accounts receivable, net 141,000 (960,000)
Inventories (9,000) (2,000)
Prepaid expenses and other assets 89,000 (55,000)
Increase (decrease) in current liabilities:
Accounts payable 1,214,000 (9,000)
Accrued liabilities (291,000) (468,000)
Income taxes (122,000) (103,000)
Deferred subscription and other revenues (500,000) 463,000
------------ ------------
Cash provided by operating activities 2,714,000 1,014,000
------------ ------------
Cash flows from investing activities:
Net sales in U.S. Treasury Bills 1,872,000 3,074,000
Capital expenditures, including acquisition (3,140,000) (4,051,000)
------------ ------------
Cash used for investing activities (1,268,000) (977,000)
------------ ------------
Cash flows from financing activities:
Purchase of treasury and common stock (767,000) (120,000)
------------ ------------
Cash used for financing activities (767,000) (120,000)
------------ ------------
Increase (decrease) in cash and cash equivalents 679,000 (83,000)
Cash and cash equivalents:
Beginning of period 181,000 462,000
------------ ------------
End of period $ 860,000 $ 379,000
============ ============
Income taxes paid during period $ 606,000 $ 899,000
See accompanying notes to consolidated financial statements.
6
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 86% owned subsidiary and consolidated since it
was acquired in January 1999, provides the SUSTAIN(R) family of products which
consist of technologies 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 interim unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary for a fair statement of its financial position
as of March 31, 2000 and September 30, 1999, the results of operations for the
three-and six- month periods ended March 31, 2000 and 1999 and its cash flows
for the six months ended March 31, 2000 and 1999.
The results of operations for the six months ended March 31, 2000 and 1999 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.
Note 3 - Basic and Diluted Earnings Per Share:
Basic and diluted earnings per share is calculated by dividing the net income
by the weighted average number of common stock outstanding.
Note 4 - Operating Segments:
The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information which became effective during last fiscal
year. As a result of its acquisition of Sustain, the Company now has two
segments of business. The Company's reportable segments are strategic business
units that offer different products and/or services. The accounting policies of
the reportable segments are the same as those described in Note 2 above.
Inter-segment transactions were eliminated, and the reported segment loss of
Sustain was net of the minority interest. Summarized financial information
concerning the Company's reportable segments is shown in the following table:
Daily Journal Sustain Total
------------- ---------- -----------
Six months ended March 31, 2000
- -------------------------------
Revenues $17,276,000 $1,574,000 $18,850,000
Segment profit (loss) 1,577,000 (596,000) 981,000
Total assets 23,634,000 8,010,000 31,644,000
Capital expenditures 752,000 2,388,000 3,140,000
Depreciation and amortization 560,000 635,000 1,195,000
Income tax expenses (benefits) 1,055,000 (315,000) 740,000
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues were $18,850,000 and $18,093,000 for the six months ended March 31,
2000 and 1999, respectively. This increase of 4% is primarily attributable to
the acquisition of 80% of Sustain in January 1999 (and the subsequent repurchase
of about 6% of Sustain in March 2000) which accounted for additional revenues of
$1,279,000 and to advertising and subscription rate increases, partially offset
primarily by the decline in revenues from publishing foreclosure notices.
During the six months ended March 31, 2000, display advertising and conference
revenues were down by $165,000 while classified advertising revenues increased
by $313,000. Public notice advertising revenues decreased by $564,000 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 93% of the total public notice
advertising revenues. Public notice advertising revenues and related
advertising and other service fees constituted about 23% of the Company's total
revenues. Circulation revenues decreased an aggregate of $73,000 (1%). The
Daily Journals accounted for about 68% 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 $1,512,000 (10%) from $15,751,000 to
$17,263,000. Sustain accounted for additional expenses of $2,022,000. Total
personnel costs were $8,957,000, representing an increase of $1,017,000 (13%) of
which $754,000 were from Sustain. Newsprint and printing expenses decreased by
$153,000 (9%) primarily because of the decrease in newsprint prices.
Commissions and other outside services increased by $368,000 (17%) primarily due
to Sustain's additional outside service expenses of $240,000, partially offset
by the decline in commission expenses because of fewer agency commissionable
foreclosure notice sales. Depreciation and amortization expenses increased by
$544,000 primarily as a result of the amortization of Sustain's assets,
including $411,000 for the amortization of Daily Journal's purchased computer
software and goodwill. The decrease in other expenses of $191,000 (9%)
primarily resulted from less legal expenses.
Pretax income in the six months ended March 31, 2000 decreased by $755,000
(32%) to $1,587,000 from $2,342,000 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 39% of the Company's pretax income. Net income was $981,000 compared to
$1,438,000 in the comparable prior year period. Net income per share decreased
to $.63 from $.91.
Liquidity and Capital Resources
During the six months ended March 31, 2000, the Company's cash and cash
equivalent position increased by $679,000, and the investments in U.S. Treasury
Bills decreased by $1,767,000. Cash and cash equivalents were used for the net
purchase of capital assets of $3,140,000, including repurchase of one-third of
the minority interest of Sustain in March and significant investments in Sustain
software to better serve the courts, and to purchase treasury and common stock
for an aggregate amount of $767,000. The cash provided by operating activities
of $2,714,000 included a net decrease in prepayments for
8
subscriptions and others of $500,000. 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 cash flows from
operating activities increased by $1,700,000 during the six months ended March
31, 2000 primarily because of the increase in accounts payable. As of March 31,
2000, the Company had working capital of $11,549,000 before deducting the
liability for deferred subscription revenues and other revenues of $7,318,000
which will be earned within one year. The cash and short-term investments in
U.S. Treasury Bills, aggregating about $8.3 million at March 31, 2000, 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 operational or financial
problems related to Year 2000 issues. 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.
9
DAILY JOURNAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
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.
10
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, 2000. The matters
submitted to a vote of security holders were the election of directors and the
ratification of the appointment of PriceWaterhouseCoopers 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:
Votes
----------------------------------------------------
Withheld Broker
Nominee's Name For Authority Non-Votes
- -------------- --- --------- ---------
Charles T. Munger 1,444,343 3,712 0
J. P. Guerin 1,444,358 3,712 0
Gerald L. Salzman 1,444,343 3,712 0
Donald W. Killian, Jr. 1,444,358 3,712 0
George C. Good 1,444,265 3,712 0
PriceWaterhouseCoopers LLP was ratified as the Company's independent
accountants with 1,443,850 votes in favor, 1,729 votes against, 2,398
abstentions and no broker non-votes.
11
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: May 12, 2000
12