Daily Journal Corp. has a market cap of $99 million; its shares were traded at around $71.75 with a P/E ratio of 12.9 and P/S ratio of 2.7. Daily Journal Corp. had an annual average earning growth of 19% over the past 10 years.
Hedge Fund Gurus that own DJCO: Whitney Tilson of T2 Partners Management, LP.
Highlight of Business Operations: During the three months ended December 31, 2010, consolidated pretax income increased by $21,000 (1%) to $3,389,000 from $3,368,000 in the prior year period. The Company s traditional business segment pretax profit increased by $68,000 (2%) to $3,676,000 from $3,608,000. Revenues declined by $496,000, and costs and expenses decreased by $573,000. Sustain s business segment had a pretax loss of $287,000 compared to $240,000 in the prior year period primarily because of a decrease in consulting revenues from governmental agencies.
Consolidated revenues were $9,295,000 and $9,858,000 for the three months ended December 31, 2010 and 2009, respectively. This decrease of $563,000 (6%) was primarily from decreases of $210,000 (4%) in public notice advertising revenues, $40,000 (10%) in classified advertising revenues, $46,000 (16%) in Sustain consulting revenues and $125,000 (7%) in circulation revenues, partially offset by an increase in display advertising revenues of $29,000 (4%). Although public notice advertising revenues were down compared to the prior year period, the Company still 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 $67,000 (8%) primarily because of the decrease in consulting revenues. The Company s revenues derived from Sustain s operations constituted about 9% of the Company s total revenues for both of the three months ended December 31, 2010 and 2009.
Costs and expenses decreased by $593,000 (9%) to $6,108,000 from $6,701,000. Total personnel costs decreased by $656,000 (16%) to $3,449,000 primarily due to savings from departmental reorganizations and a reduction in the accrual for the Company s Management Incentive Plan, partially offset by an annual salary adjustment. Other general and administrative expenses increased by $180,000 (21%) mainly because of additional legal fees.
On a pretax profit of $3,389,000 and $3,368,000 for the three months ended December 31, 2010 and 2009, the Company recorded a tax provision of $1,205,000 and $1,280,000, respectively, which was lower than the amount computed using the statutory rate because of the available dividends received deduction and the domestic production activity deduction (which increased in fiscal 2011). Consequently, the Company s effective tax rate was 35.6% and 38% for the three-month period ended December 31, 2010 and 2009, respectively. The Company files federal income tax returns in the United States and with various state jurisdictions and is no longer subject to examinations for years before 2002 as well as for years 2008 and 2009 with regard to federal income taxes. 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 December 31, 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 $1.58 from $1.51.
During the three months ended December 31, 2010, the Company's cash and cash equivalents, U.S. Treasury and marketable security positions increased by $10,149,000. In February 2009, the Company took advantage of near-panic selling in the stock market and redeployed some of its cash, which had been invested in Treasury securities and was generating only nominal interest, to purchase the common stock of two Fortune 200 companies and certain bonds of a third. So far, these investments have been very successful. As of December 31, 2010, there were unrealized gains of $39,935,000 as compared to $29,655,000 at September 30, 2010, almost all of which were in the common stocks.
The cash used in operating activities of $110,000 included a net decrease in deferred subscription and other revenues of $440,000. 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 decreased by $3,237,000 during the three months ended December 31, 2010 as compared to the prior period primarily resulting from an increase in accounts receivable of $4,021,000, partially offset by an increase in accounts payable of $1,062,000.
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