Daily Journal Corp. has a market cap of $95.4 million; its shares were traded at around $65.91 with a P/E ratio of 10.9 and P/S ratio of 2.4. Daily Journal Corp. had an annual average earning growth of 11.3% over the past 10 years.DJCO is in the portfolios of Bruce Berkowitz of Fairholme Capital Management.
Highlight of Business Operations:During the nine months ended June 30, 2010, consolidated pretax income decreased by $253,000 (3%) to $9,130,000 from $9,383,000 in the prior year period. The Company s traditional business segment pretax profit increased by $509,000 (5%) to $9,860,000 from $9,351,000 primarily because of an increase in the number of trustee foreclosure notices that were published in the Company s newspapers and a decrease in costs and expenses. Sustain s business segment pretax loss increased to $730,000 from a pretax profit of $32,000 because of a decrease in consulting revenues from governmental agencies.
Consolidated revenues were $28,437,000 and $30,315,000 for the nine months ended June 30, 2010 and 2009, respectively. This decrease of $1,878,000 was primarily from decreases of $528,000 (19%) in display advertising revenues, $269,000 (16%) in classified advertising revenues and $592,000 (10%) in circulation revenues, partially offset by an increase in public notice advertising revenues of $772,000. The Company continued to benefit from the large number of foreclosures in California and Arizona for which public notice advertising is required by law. Sustain s information systems and services revenues decreased by $1,272,000 (34%) primarily because of a decrease in consulting revenues. The Company s revenues derived from Sustain s operations constituted about 9% and 12% of the Company s total revenues for the nine months ended June 30, 2010 and 2009, respectively.
Costs and expenses decreased by $1,521,000 (7%) to $19,935,000 from $21,456,000. Newsprint and printing expenses decreased by $330,000 (23%) primarily resulting from fewer subscribers and a decrease in the price of paper. Other outside services decreased by $531,000 (19%) primarily resulting from reduced computer programming services. (Costs and expenses were $6,706,000 and $7,260,000 for the three months ended June 30, 2010 and 2009, respectively.) The trend of expenses was driven by the same factors for the three-month period as in the nine-month period.
Consolidated net income was $5,660,000 and $5,773,000 for the nine months ended June 30, 2010 and 2009, respectively. On a pretax profit of $9,130,000 and $9,383,000 for the nine months ended June 30, 2010 and 2009, the Company recorded a tax provision of $3,470,000 and $3,610,000, respectively. The Internal Revenue Service has been examining the tax returns for years 2002 to 2007 and has proposed an assessment that, if upheld, would result in disallowance of about $700,000 of previously claimed research and development credits. As of June 30, 2010, the Company had approximately $700,000 of unrecognized tax benefits, all of which would have an effective rate impact if recognized. The Company is continuing to contest the issue in the United States Tax Court, and the ultimate resolution of this dispute cannot be ascertained at this time. Net income per share increased to $4.10 from $4.08.
The cash provided by operating activities of $7,171,000 included a net decrease in deferred subscription and other revenues of $148,000. Proceeds from the sale of subscriptions from newspapers, court rule books and other publications and for software licenses and maintenance and other services are recorded as deferred revenue and are included in earned revenue only when the services are rendered. Cash flows from operating activities increased by $1,476,000 during the nine months ended June 30, 2010 as compared to the prior period primarily resulting from the decrease in accounts receivable.
As of June 30, 2010, the Company had working capital of $51,529,000, including the liability for deferred subscription and other revenues of $5,192,000 which are scheduled to be earned within one year and the deferred tax liability of $11,555,000 for the unrealized gains in its investments.
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