TO: SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED October 31, 1995
COMMISSION FILE NUMBER 0-1391
ZIONS COOPERATIVE MERCANTILE INSTITUTION
A UTAH CORPORATION
SALT LAKE CITY, UTAH 84137
TELEPHONE NUMBER 801:579-6404
IRS EMPLOYEE IDENTIFICATION NUMBER 87-0196220
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 prceding 12 months (or of such charter 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
Number of Shares outstanding: Common Stock 2,168,942 shares
Other shares, none
<PAGE>
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
INDEX
TITLE PAGE NO.
Condensed Balance Sheet 1
Condensed Income Statement 3
Three Months Ended Oct 28, 1995 & Oct 29, 1994
Condensed Income Statement 4
Nine Months Ended Oct 28, 1995 & Oct 29, 1994
Statements of Cash Flows 5
Three Months Ended Oct 28, 1995 & Oct 29, 1994
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of the 7
Condensed Income Statement
Other Information 10
Signatures 11
<PAGE>
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - OCTOBER 28, 1995 & JANUARY 28, 1995
In Thousands (000 omitted)
ASSETS AND OTHER DEBITS
Current Assets: OCTOBER JANUARY
1995 1995
<S> <C> <C>
Cash and short term investments $ 631 $ 2,699
Net Accounts and Notes Receivable 43,440 54,679
Inventories:
Finished goods 56,603 44,767
Supplies 2,771 1,645
Deferred income taxes 1,290 1,290
Prepaid Expenses 787 760
Total Current Assets $105,522 $105,840
Property:
Property, plant and equipment $ 35,368 $ 34,429
Less accumulated depreciation (13,451) (11,595)
Capital Leases, Net Accumulated Amortization 13,777 15,358
Total Property $ 35,694 $ 38,192
Other Assets 598 598
TOTAL ASSETS AND OTHER DEBITS 141,814 144,630
</TABLE>
See notes to financial statements
-1-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - OCTOBER 28, 1995 & JANUARY 28, 1995
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
<S> <C> <C>
OCTOBER JANUARY
1995 1995
Current Liabilities:
Accounts payable - trade $ 7,509 $ 6,648
Short term borrowings - banks 15,035 11,500
Current portion of long-term debt 454 146
Current portion of obligations under
capital leases 2,238 1,790
Accrued liabilities
Outstanding gift certificates 1,434 1,566
Reserve for store closings 759 768
Other accrued liabilities 7,110 12,008
Deferred gain on sale and leaseback 1,221 1,221
Total Current Liabilities $ 35,760 $ 35,647
Long-Term Debt:
Bonds, mortgages and similar debt 34,775 30,222
Capital Lease - Long Term Portion (Note 1) 19,078 20,752
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes 1,302 1,302
Deferred Gross Profit 2,217 3,136
Stockholders Equity:
Capital shares $ 14,668 $ 14,621
Retained Earnings 34,014 38,950
Total Stockholders Equity $ 48,682 $ 53,571
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $141,814 $144,630
</TABLE>
See notes to financial statements
-2-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENT OF OPERATIONS FOR THREE MONTHS ENDED OCT 28, 1995 & OCT 29, 1994
In Thousands (000 omitted)
1995 1994
<S> <C> <C>
Net Sales $58,853 $59,780
Other revenues 1,396 1,458
Cost of goods sold, direct merchandising and
buying costs (40,836) (41,352)
Selling, general and administrative expenses (19,032) (19,387)
Other Income/Expense:
Sale of Ogden Store 0 1,023
Income Deductions:
Interest and amortization of debt discount and
expenses (697) (634)
Interest Expense on Capital Leases (Note 1) (654) (638)
Miscellaneous income deductions 18 823
Net loss before income tax expense
and extraordinary items $ (952) $ 1,073
Income tax benefit 0 0
Net loss before extraordinary items $ (952) $ 1,073
Extraordinary items less applicable tax 0 0
Net Loss $ (952) $ 1,073
Weighted avg number of common shares outstanding 2,168,942 2,168,942
Earnings per common share ($ 0.44) $ 0.49
Cash dividends per common share $ 0.15 $ 0.15
</TABLE>
See notes to financial statements
-3-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENT OF OPERATIONS FOR NINE MONTHS ENDED OCT 28, 1995 & OCT 29, 1994
In Thousands (000 omitted)
1995 1994
<S> <C> <C>
Net Sales $161,408 $158,227
Other revenues
Cost of goods sold, direct merchandising and 4,274 4,266
buying costs (111,461) (109,146)
Selling, general and administrative expenses (53,606) (51,866)
Other Income/Expense:
Sale of Ogden Store 0 1,023
Income Deductions:
Interest and amortization of debt discount
and expenses (2,130) (1,385)
Interest Expense on Capital Leases (Note 1) (1,960) (1,914)
Miscellaneous income deductions (501) (321)
Net loss before income tax expense
and extraordinary items (3,976) ( 474)
Income tax benefit 0 0
Net loss before extraordinary items $ (3,976)$ ( 474)
Extraordinary items less applicable tax 0 0
Net Loss $ (3,976)$ ( 474)
Weighted avg number of common shares outstanding 2,168,942 2,168,942
Earnings per common share $(1.83) $ (0.22)
Cash dividends per common share $ 0.15 $ 0.15
</TABLE>
See notes to financial statements
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<TABLE>
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF CASH FLOWS FOR THREE MONTHS ENDED OCTOBER 28, 1995
& OCTOBER 29, 1994
In Thousands (000 omitted)
OCTOBER OCTOBER
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(3,976) $ (474)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,485 3,179
Deferred gross profit (920) (446)
Deferred income taxes 0 0
Provision for losses on accounts receivable 571 721
Decrease (increase) in assets:
Accounts receivable 10,667 6,119
Inventories (12,962) (12,124)
Prepaid expenses (26) (122)
Other assets 0 33
Increase (decrease) in liabilities:
Accounts payable - trade 4,896 5,238
Accrued liabilities (5,039) (5,442)
Net cash provided by operating activities (3,304) (3,319)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,790) (6,386)
Proceeds from sale of property,
plant, and equipment 1,805 4,364
Net cash used in investing activities (985) (2,022)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (500) (3,500)
Additions to (from) long-term debt 4,553 6,192
Principal payments on long-term debt &
obligations under capital leases (917) (1,557)
Stock options exercised and sales of capital stock
Purchase of treasury stock 53 146
Sale of treasury stock
Cash dividends (968) (966)
Net cash provided by (used in) financing activities 2,221 315
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,068) (5,025)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,699 5,315
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 631 $ 290
</TABLE>
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Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
Notes to Financial Statements
1. The Company has non-cancellable leases covering store space which expire
on various dates through 2016. Some of the leases contain provisions for
additional annual lease payments based on a percentage of sales at the
leased store. The leases have renewal options for additional periods
ranging from 50 to 69 years.
2. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of October 28, 1995 and January 28, 1995 and the results of operations for
the three months ended October 28, 1995 and October 29, 1994, for nine
months ended October 28, 1995 and October 29, 1994 and changes in
financial position for three months ended October 28, 1995 and October 29,
1994.
3. The results of operations for the three months period ended October 28,
1995 and October 28, 1994 and the nine months period ended October 28,
1995 and October 29, 1994 are not necessarily indicative of the results to
be expected for the full year.
-6-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED INCOME STATEMENTS
1. Prospective Information:
During the year ended January 28, 1995, ZCMI closed the Superstition Springs
store in Mesa, Arizona. This store had been converted to an outlet store
format during fiscal 1992, as were stores in the now-closed Village Fair
Mall in Phoenix, Arizona; the Tri-City Mall in Mesa, Arizona and the East
Bay Mall in Provo, Utah. ZCMI did not open any stores during the fiscal
year ended January 28, 1995. The Tri-City Mall store in Mesa is scheduled
to close on December 23, 1995. No new stores are planned during the
remainder of the current fiscal year.
The Company is also in the final phases of converting from a mainframe
computer to a more efficient computer system. This conversion from the
present IBM 4381 mainframe to an IBM AS/400 computer system is estimated
to cost approximately $2,500,000 from inception to completion of the
project.
It is anticipated that these capital expenditures will be financed by
internally generated funds, the leasing of fixtures, and by short-term and
long-term debt.
ZCMI has completed the remodeling projects at the Cottonwood Mall, Valley
Fair Mall, and Layton Hills Mall stores. There are no further renovation
projects scheduled for 1995. The Ogden store was sold during October 1994.
The Ogden store is now located in Ogden City Mall, across the street from
its previous location. Fixed asset expenditures for the current year are
intended for the purchase of new assets and the maintenance of currently
owned assets and should be approximately $2,000,000.
2. Liquidity and Capital Resources:
The quick and current ratios are 1.3 and 3.0, respectively for the third
quarter 1995 as compared to 1.3 and 2.8 for the same time period in 1994.
This indicates that the Company's liquidity is more than adequate. These
ratios will fluctuate from quarter to quarter due to the seasonality of
inventory requirements. The liquidity is considered adequate to finance
current operations, pay dividends, and provide for capital expenditures.
The lines of credit that the Company has ($53,500,000) are adequate to
handle the borrowing requirements for the above mentioned items.
(Continued on page 8)
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Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED INCOME STATEMENTS
(Continued from page 7)
3. Material Changes:
Accounts Receivable balances normally decline from prior year end balances
due to customer payments on Christmas merchandise as well as the customer
using a third party charge card instead of a ZCMI charge card.
Funding for the increased levels of inventory has increased long-term debt
while short term borrowing has decreased. Inventories increased because
of the seasonal trend in inventory levels.
4. Interim Period Reporting:
Comparisons between the third quarter of our fiscal year and the fourth
quarter of the prior year in the department store industry are not only
meaningless, but if made, could be misleading. The Company and the
industry typically records about 33% of its annual sales in the fourth
quarter versus about 20% in the third quarter, due to the variation in
seasonal buying patterns of consumers. Variations in net income is even
greater due to the relatively fixed expenses that accrue rather evenly
throughout the year. As a result, many retailers have net losses in the
third quarter.
Sales decreased by 1.6% in the third quarter of 1995 over the third quarter
of 1994. This is primarily due to increasing competition in the Salt Lake
market area.
Cost of goods sold have remained the same at 69.38% for the three month
period ended October 28, 1995 as compared to the same period for 1994.
Markdowns have increased slightly to 18.3% of sales as of October 28, 1995
as compared to 17.9% of sales on October 29, 1994. Selling, general, and
administrative expenses have increased as a percent of sales. As of
October 28, 1995, they were 32.33% of sales while they were 30.30% of sales
as of October 29, 1994. The low percentage in 1994 is due to the sale
of the Ogden store in October of the same year. The income from the sale of
the store was $1,023,000. If the sale of this store had not been made,
this ratio would have been 32.01% of sales.
For the first nine months of 1995, cost of goods sold as a percent of
sales remained steady at 69.1%, while for the same time period in 1994 cost
of goods sold as a percent of sales was 69.0%. Selling, general, and
administrative expenses increased slightly to 33.2% as a percent of sales.
Operating expenses increased in the third quarter as a result of increased
depreciation, leases, and rental of furniture, fixture and
(Continued on Page 9)
-8-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED INCOME STATEMENTS
(Continued from page 8)
equipment due to remodeling and expansion. Also, pension and health
insurance expense have continued to increase as the cost of providing
fringe benefits to associates have increased. Interest expense has
continued to rise as the interest rates have increased over this time
last year. Other causes of increasing interest expense are due to
increased borrowing for credit, inventory, and fixed asset acquisitions.
Interest income from the use of credit cards has decreased during the first
nine months of the year contributing to the net loss for the year and the
third quarter.
5. Store Closing Expenditures:
ZCMI made a decisive move to close stores in Charleston Commons Mall in Las
Vegas, Nevada and Pavilions Mall in Scottsdale, Arizona during the fiscal
year ended January 31, 1992. Closing expenses during that year were
$298,800. As previously mentioned, the Village Fair Mall store was closed
during the fiscal year ended January 29, 1994. As part of the continuing
effort to close these unprofitable stores, $650,000 was reserved from
profits in fiscal 1991 for closing costs, while $4,600,000 was reserved
from current year profits during fiscal 1992 and $1,900,000 reserved from
current year profits in fiscal 1993. As mentioned earlier, ZCMI is
scheduled to close the Tri-City Mall store on December 23, 1995. The
amounts that have been reserved are considered sufficient to close all
unprofitable stores without any further costs.
-9-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to routine legal proceedings incident to its
business none of which, in the opinion of management, will have a
material adverse effect on The Company's business or financial
condition.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
1. The Company was not required to report material or unusual charges
or credits to income pursuant to item 10 (a) or a change in
independent accountants pursuant to item 12 of Form 8-K for any of
the three months ended October 28, 1995.
2. There were no securities of the Company sold by the Company during
the three months ended October 28, 1995 which were not registered
under the Securities Act of 1933 in reliance upon an exemption from
registration provided by section 4 (2) of the Act.
Item 6. Exhibits and Reports on Form 8-K.
None.
-10-
Form 10-Q
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
ZIONS COOPERATIVE MERCANTILE INSTITUTION
Date:December 14, 1995 Keith C. Saunders
Keith C. Saunders,
Executive Vice President - CFO
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> OCT-28-1995
<CASH> 631
<SECURITIES> 0
<RECEIVABLES> 46,068
<ALLOWANCES> 2,628
<INVENTORY> 59,374
<CURRENT-ASSETS> 105,522
<PP&E> 66,733
<DEPRECIATION> 31,039
<TOTAL-ASSETS> 141,814
<CURRENT-LIABILITIES> 35,760
<BONDS> 0
<COMMON> 14,688
0
0
<OTHER-SE> 34,014
<TOTAL-LIABILITY-AND-EQUITY> 141,814
<SALES> 161,408
<TOTAL-REVENUES> 165,682
<CGS> 111,461
<TOTAL-COSTS> 164,496
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 571
<INTEREST-EXPENSE> 4,090
<INCOME-PRETAX> (3,976)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,976)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,976)
<EPS-PRIMARY> (1.83)
<EPS-DILUTED> (1.83)
</TABLE>
