Tuesday, February 5, 2002
Daily Journal Corporation Investors to Meet Amid Financial Woes
Company Dumps More Than $15 Million Into Defective Software
By a MetNews Staff Writer
Shareholders of the Daily Journal Corporation are scheduled to hold their annual meeting this morning amid concerns over the publishing company’s rocky finances.
DJC, which publishes the Los Angeles Daily Journal and other newspapers, blew $15.6 million on software that didn’t work, according to its latest filing with the Securities Exchange Commission.
Weighing that debit against profits, DJC’s net loss in its last fiscal year was $13.4 million, according to a report filed Jan. 11. The loss represents more than half the worth of that $21 million corporation.
The agenda for today’s meeting at DJC’s offices near the Civic Center includes election of a Board of Directors, ratification of the appointment of Ernst & Young as the company’s new independent accountant, and discussion of “such other matters as may properly come before the meeting.” Expected to almost certainly come under discussion is the company’s ill-starred software investment.
The defective software was manufactured by Sustain Technologies, Inc., in which DJC purchased a 91 percent interest. The software is intended for use by courts, and one announced aim of Sustain is to facilitate computerized filings of papers.
In addition to writing off monies spent on the failed software, DJC suffered a cut-back in revenues from its profitable ventures of more than one third from its previous fiscal year. DJC sets the end of its fiscal years at Sept. 30.
According to the SEC report, executed by DJC President Gerald Salzman:
“The Company’s non-Sustain business segment pretax profit decreased by $2,047,000 (36%) to $3,616,000 from $5,663,000, primarily due to a downturn in commercial advertising and fewer court rule subscriptions.”
The Jan. 11 report amended one filed Dec. 31 which set the revenue drop at $1.4 million, or 24 percent.
That earlier report explained the software debacle by saying:
“The Company’s expenditures in support of the Sustain software are very high and grossly impact overall results. As of September 30, 2000, capitalized Sustain software costs consisted of purchased software of $3,023,000 that was capitalized upon the acquisition of Sustain and $6,943,000 for amounts capitalized related to the use of an outside service provider to further develop the software product. In fiscal 2001, the Company invested an additional $8,105,000 in the development of system software representing costs related to the use of the outside service provider. During April 2001, the Company determined that the purchased software so provided was not functioning as intended, and therefore the development efforts of the outside provider were discontinued, and its work was terminated. The software development project was both seriously flawed and seriously behind schedule at the time of termination and was, therefore, of virtually zero commercial value.”
DJC discontinued its relationship with its outside contractor, which subsequently declared bankruptcy. It is attempting to develop the software in-house, the Dec. 31 report said, but acknowledged that the effort “will materially impact earnings at least through fiscal 2002, and very likely much longer.”
It added that DJC’s “overall earnings in fiscal 2002 could be zero, or a loss could be incurred.”
Last year, the price of DJC stock ranged from a low of $19 (on Dec. 17) to a high of $33.25 (on Feb. 22). The stock had not been sold as low as $19 since April 27, 1995.
The per-share price range was $27-$34 in 2000, $30-$41.25 in 1999, $32-$41.50 in 1998, $27.50-$44.50 in 1997.
A Jan. 8 proxy solicitation statement specified that Salzman, whose annual salary is $250,000, did not receive his usual $100,000 bonus in the last fiscal year, nor other additional compensation—which had amounted to $238,280 in 2000, $352,240 in 1999, $ $501,720 in 1998, and $464,720 in 1997.
Copyright 2002, Metropolitan News Company