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, 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 July 31, 2000
- -------------------------------------- ----------------------------
Common Stock, par value $ .01 per share 1,574,506
shares
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DAILY JOURNAL CORPORATION
INDEX
Page Nos.
PART I Financial Information
Item 1. Financial statements
Consolidated Balance Sheets -
June 30, 2000 and September 30, 1999 3
Consolidated Statements of Income -
Three months ended June 30, 2000 and 1999 4
Consolidated Statements of Income -
Nine months ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows -
Nine months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 12
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PART I
Item 1. Financial Statements
DAILY JOURNAL CORPORATION - CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, September 30,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,308,000 $ 181,000
U.S. Treasury Bills, at cost plus discount earned 2,944,000 9,175,000
Accounts receivable, less allowance for doubtful
accounts of $1,000,000 and $800,000, respectively 10,145,000 8,471,000
Inventories 40,000 45,000
Prepaid expenses and other assets 239,000 329,000
Deferred income taxes 737,000 801,000
------------ ------------
Total current assets 15,413,000 19,002,000
------------ ------------
Property, plant and equipment, at cost:
Land, buildings and improvements 8,327,000 8,104,000
Furniture, office equipment and computer software 15,541,000 9,361,000
Machinery and equipment 1,364,000 1,364,000
------------ ------------
25,232,000 18,829,000
Less accumulated depreciation (9,282,000) (7,170,000)
------------ ------------
15,950,000 11,659,000
Deferred income taxes 299,000 382,000
Intangible assets, at cost, less accumulated amortization
of $157,000 and $74,000, respectively 790,000 482,000
------------ ------------
$ 32,452,000 $ 31,525,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,864,000 $ 3,025,000
Accrued liabilities 2,169,000 1,997,000
Income taxes 147,000 122,000
Deferred subscription revenue and other revenues 7,527,000 7,818,000
------------ ------------
Total current liabilities 13,707,000 12,962,000
------------ ------------
Minority interest 653,000 895,000
------------ ------------
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; 1,574,506 shares and 1,601,816 shares,
respectively, outstanding 16,000 16,000
Other paid-in capital 2,001,000 2,036,000
Retained earnings 16,864,000 16,233,000
Less 43,271 and 37,544 treasury shares, respectively, at cost (789,000) (617,000)
------------ ------------
Total shareholders' equity 18,092,000 17,668,000
------------ ------------
$ 32,452,000 $ 31,525,000
============ ============
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months
ended June 30
-------------
2000 1999
---------- ----------
Revenues:
Advertising $5,324,000 $5,199,000
Circulation 3,034,000 2,979,000
Information systems and services 158,000 366,000
Advertising service fees and other 1,214,000 1,038,000
---------- ----------
9,730,000 9,582,000
---------- ----------
Costs and expenses:
Salaries and employee benefits 4,420,000 4,234,000
Newsprint and printing expenses 792,000 820,000
Commissions and other outside services 1,054,000 1,202,000
Postage and delivery expenses 490,000 575,000
Depreciation and amortization 1,001,000 512,000
Other 1,386,000 1,585,000
---------- ----------
9,143,000 8,928,000
---------- ----------
Income before taxes 587,000 654,000
Provision for income taxes 350,000 260,000
---------- ----------
Income before minority interest in net loss of subsidiary 237,000 394,000
Minority interest in net loss of subsidiary 238,000 56,000
---------- ----------
Net income $ 475,000 $ 450,000
========== ==========
Weighted average number of common
shares outstanding - basic and diluted 1,537,581 1,579,228
========== ==========
Basic and diluted net income per share $.31 $.28
========== ==========
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine months
ended June 30
-------------
2000 1999
----------- -----------
Revenues:
Advertising $15,191,000 $15,482,000
Circulation 8,800,000 8,818,000
Information systems and services 1,732,000 661,000
Advertising service fees and other 2,857,000 2,714,000
----------- -----------
28,580,000 27,675,000
----------- -----------
Costs and expenses:
Salaries and employee benefits 13,377,000 12,174,000
Newsprint and printing expenses 2,288,000 2,469,000
Commissions and other outside services 3,585,000 3,365,000
Postage and delivery expenses 1,547,000 1,705,000
Depreciation and amortization 2,196,000 1,163,000
Other 3,413,000 3,803,000
----------- -----------
26,406,000 24,679,000
----------- -----------
Income before taxes 2,174,000 2,996,000
Provision for income taxes 1,090,000 1,200,000
----------- -----------
Income before minority interest in net loss of subsidiary 1,084,000 1,796,000
Minority interest in net loss of subsidiary 372,000 92,000
----------- -----------
Net income $ 1,456,000 $ 1,888,000
=========== ===========
Weighted average number of common
shares outstanding - basic and diluted 1,552,673 1,582,519
=========== ===========
Basic and diluted net income per share $.94 $1.19
=========== ===========
See accompanying notes to consolidated financial statements.
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DAILY JOURNAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months
ended June 30
-------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 1,456,000 $ 1,888,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 2,196,000 1,163,000
Minority interest in consolidated subsidiary (372,000) (92,000)
Deferred income taxes 147,000 (1,000)
Discount earned on U.S. Treasury Bills (28,000) (104,000)
Changes in assets and liabilities:
(Increase) decrease in current assets:
Accounts receivable, net (1,674,000) (1,839,000)
Inventories 5,000 1,000
Prepaid expenses and other assets 90,000 (91,000)
Increase (decrease) in current liabilities:
Accounts payable 839,000 714,000
Accrued liabilities 172,000 (513,000)
Income taxes 25,000 (282,000)
Deferred subscription and other revenues (291,000) 928,000
------------ ------------
Cash provided by operating activities 2,565,000 1,772,000
------------ ------------
Cash flows from investing activities:
Net sales in U.S. Treasury Bills 6,259,000 3,375,000
Capital expenditures, including acquisition (6,665,000) (4,320,000)
------------ ------------
Cash used for investing activities (406,000) (945,000)
------------ ------------
Cash flows from financing activities:
Purchase of treasury and common stock (1,032,000) (267,000)
------------ ------------
Cash used for financing activities (1,032,000) (267,000)
------------ ------------
Increase in cash and cash equivalents 1,127,000 560,000
Cash and cash equivalents:
Beginning of period 181,000 462,000
------------ ------------
End of period $ 1,308,000 $ 1,022,000
============ ============
Income taxes paid during period $ 918,000 $ 1,509,000
============ ============
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 and Corporate Counsel magazines 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., now a 91% owned
subsidiary which has been 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 June 30, 2000 and September 30, 1999, the results of operations for the
three- and nine- month periods ended June 30, 2000 and 1999 and its cash flows
for the nine months ended June 30, 2000 and 1999.
The results of operations for the nine months ended June 30, 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 are 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:
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Operating Segments
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Daily Journal Sustain Total
------------- ------- -----
Nine months ended June 30, 2000
- -------------------------------
Revenues $26,781,000 $ 1,799,000 $28,580,000
Segment net income (loss) after minority interest 2,632,000 (1,176,000) 1,456,000
Total assets 21,360,000 11,092,000 32,452,000
Capital expenditures 1,165,000 5,500,000 6,665,000
Depreciation and amortization 911,000 1,285,000 2,196,000
Income tax expenses (benefits) 1,755,000 (665,000) 1,090,000
Note 5 - Capitalized Software Costs:
Pursuant to Statement of Financial Accounts Standards No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased, or otherwise Marketed,
software costs incurred subsequent to the determination of the technological
feasibility of the software product are capitalized. The amortization period for
the capitalized software costs is five years and begins in the months such costs
are capitalized.
Note 6 - Effects of New Accounting Pronouncements:
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for revenue recognition under various
circumstances. The accounting and disclosure prescribed by SAB 101 will be
effective for the fourth quarter of the Company's fiscal year ending September
30, 2001. The effect of adopting SAB 101 is currently being evaluated, however,
the Company does not believe the effects of adoption will be material to its
financial position or results of operations.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues were $28,580,000 and $27,675,000 for the nine months ended June 30,
2000 and 1999, respectively. This increase of $905,000 (3%) was primarily
attributable to the acquisition of 80% of Sustain in January 1999, (and the
subsequent acquisition of about 6% of Sustain in March 2000 and 5% in June 2000)
which accounted for additional revenues of $1,067,000 and to advertising and
subscription rate increases, partially offset primarily by the decline in
revenues from publishing foreclosure notices. (Revenues were $9,730,000 and
$9,582,000 and expenses were $9,143,000 and $8,928,000 for the three months
ended June 30, 2000 and 1999, respectively.)
During the nine months ended June 30, 2000, display advertising and conference
revenues were down by $207,000 while classified advertising revenues increased
by $502,000. Public notice advertising revenues decreased by $586,000 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 25% of the Company's total
revenues. Circulation revenues decreased an aggregate of $18,000. 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 $1,727,000 (7%) from $24,679,000 to
$26,406,000. Sustain accounted for additional expenses of $2,517,000. Total
personnel costs were $13,377,000, representing an increase of $1,203,000 (10%)
of which $875,000 were from Sustain. Newsprint and printing expenses decreased
by $181,000 (7%) primarily because of the decrease in bonus issues and newsprint
prices. Commissions and other outside services increased by $220,000 (7%)
primarily due to Sustain's additional outside service expenses of $375,000,
partially offset by the decline in commission expenses because of fewer agency
commissionable foreclosure notice sales. Depreciation and amortization expenses
increased by $1,033,000 (89%) primarily as a result of the amortization of
Sustain's assets, including $605,000 for the amortization of Daily Journal's
purchased computer software and goodwill. The decrease in other expenses of
$390,000 (10%) primarily resulted from less legal expenses, partially offset by
the increase of $200,000 in the allowance for doubtful accounts.
Pretax income in the nine months ended June 30, 2000 decreased by $822,000
(27%) to $2,174,000 from $2,996,000 during the comparable periods in fiscal
1999, primarily because of Sustain's loss. (The Daily Journal business segment's
pretax profit increased by $628,000 (17%) to $4,387,000 from $3,759,000.) The
Company's smaller newspapers and its newspaper representative, which specializes
in public notice advertising, accounted for about 44% of the Company's pretax
income. (Pretax income was $587,000 as compared with $654,000 for the three
months ended June 30, 2000 and 1999, respectively.) Net income was $1,456,000
compared to $1,888,000 in the comparable prior year period. Net income per share
decreased to $.94 from $1.19.
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Liquidity and Capital Resources
During the nine months ended June 30, 2000, the Company's cash and cash
equivalent position increased by $1,127,000, and the investments in U.S.
Treasury Bills decreased by $6,231,000. Cash and cash equivalents were used for
the net purchase of capital assets of $6,665,000, including significant
investments in Sustain software to better serve the courts and Sustain's
repurchase of one-third of the minority interest in March, and to purchase
treasury and common stock for an aggregate amount of $1,032,000. The cash
provided by operating activities of $2,565,000 included a net decrease in
prepayments for subscriptions and others of $291,000. 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 $793,000 during the nine months ended
June 30, 2000 primarily because of the changes in accounts receivable and
accounts payable. As of June 30, 2000, the Company had working capital of
$9,233,000 before deducting the liability for deferred subscription revenues and
other revenues of $7,527,000 which will be earned within one year. The cash and
short-term investments in U.S. Treasury Bills, aggregating about $4.3 million at
June 30, 2000, and the current level of cash provided by operating activities
appear adequate to meet the Company's operating obligations. However, the
Company may borrow money for other corporate purposes, including the financing
of the planned construction of a new building in Los Angeles, estimated to cost
about $2 million, on land purchased several years ago and for the continuing
investments in Sustain software.
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 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, and two days later, the trial court
held that Metropolitan News' claims also failed as a matter of law. On July 10,
2000, the California Court of Appeal affirmed the jury verdict and the trial
court's decision in all respects. Metropolitan News has now filed a petition for
rehearing in the Court of Appeal. 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:
(a) Changes in Registrant's Certifying Accountant - July 6, 2000
(b) Changes in Registrant's Certifying Accountant - August 4, 2000
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 14, 2000
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