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 July 31, 1996
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.
Balance Sheet 1
August 3, 1996 & February 3, 1996
Statement of Income 3
Three Months Ended August 3, 1996 & July 29, 1995
Statement of Income 4
Six Months Ended August 3, 1996 & July 29, 1995
Condensed Statement of Cash Flows 5
Three Months Ended August 3, 1996 and July 29,1995
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of the 7
Condensed Income Statements
Other Information 10
Signatures 11
<PAGE>
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEET - AUGUST 3, 1996 & FEBRUARY 3, 1996
In Thousands (000 omitted)
ASSETS AND OTHER DEBITS
Current Assets: JULY JANUARY
1996 1996
<S> <C> <C>
Cash and cash items $ 647 $ 2,698
Accounts and Notes Receivable 41,807 52,028
Less allowance for doubtful accounts 1,770 1,307
Net Accounts Receivable and Notes Receivable 40,037 50,721
Inventories:
Finished goods - LIFO cost, retail method 46,067 44,766
Supplies - FIFO cost 1,775 1,111
Prepaid Expenses 1,434 1,321
Deferred Income Taxes 2,016 2,016
Total Current Assets $91,976 102,633
Property:
Property, plant and equipment $31,724 $29,683
Less accumulated depreciation, depletion
and amortization of property, plant & equipment 10,723 9,660
Capital Leases, Net Accumulated Amortization
(Note 1) 12,202 13,251
Total Property - Net $33,203 $38,274
Other Assets and Deferred Charges:
Other Assets 294 294
Investment in Subsidiary 304 304
TOTAL ASSETS AND OTHER DEBITS $125,777 $136,505
</TABLE>
See Notes to condensed financial statements
-1-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEET - AUGUST 3, 1996 & FEBRUARY 3, 1996
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
JULY JANUARY
1996 1996
<S> <C> <C>
Current Liabilities:
Accounts payable - trade $ 4,572 $ 7,370
Short term borrowings - banks 5,140 2,500
Current portion of long-term debt 325 311
Current portion of obligations under capital
leases 2,253 2,291
Accrued liabilities
Outstanding gift certificates 1,485 1,611
Reserve for store closings 205 205
Other accrued liabilities 8,160 8,960
Deferred gain on sale and leaseback 1,608 1,608
Total Current Liabilities $23,748 $24,856
Long-Term Debt:
Bonds, mortgages and similar debt 31,988 37,886
Capital Lease - Long Term Portion (Note 1) 17,441 18,520
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes 683 683
Deferred Gross Profit 2,679 3,498
Stockholders Equity:
Capital shares $14,783 $14,731
Pension Liability Adjustment (1,908) (1,909)
Other stockholders equity 36,363 38,240
Total Stockholders Equity $49,238 $51,062
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $125,777 $136,505
</TABLE>
See notes to condensed financial statements
-2-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED AUGUST 3,1996 & JULY 29, 1995
In Thousands (000 omitted)
1996 1995
<S> <C> <C>
Net Sales $53,432 $52,108
Cost of goods sold, direct merchandising and
buying costs 36,973 36,072
Other revenues 1,225 1,354
Other costs and expenses applicable to other revenue 0 0
Selling, general and administrative expenses 16,841 16,954
Provision for doubtful accounts and notes 177 166
Other Income:
Miscellaneous other income 112 115
Income Deductions:
Interest and amortization of debt discount and
expenses 598 740
Interest Expense on Capital Leases (Note 1) 462 655
Miscellaneous income deductions 405 400
Net loss before income tax expense and
extraordinary items $ (687) $(1,410)
Income tax expense 0 0
Netloss before extraordinary items $ (687) $(1,410)
Extraordinary items less applicable tax 0 0
Net Loss $ (687) $(1,410)
Weighted average number of common shares outstanding 2,168,942 2,168,942
Earnings per common share $ (0.32) $ (0.65)
Cash dividends per common share $ 0.15 $ 0.15
</TABLE>
See notes to condensed financial statements
-3-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED AUGUST 3, 1996 & JULY 29, 1995
In Thousands (000 omitted)
1996 1995
<S> <C> <C>
Net Sales $107,515 $102,555
Cost of goods sold, direct merchandising and
buying costs 74,091 70,625
Other revenues 2,807 2,878
Other costs and expenses applicable to other revenue 0 0
Selling, general and administrative expenses 34,383 34,252
Provision for doubtful accounts and notes 362 322
Other Income:
Miscellaneous other income 198 279
Income Deductions:
Interest and amortization of debt discount
and expenses 1,193 1,433
Interest Expense on Capital Leases (Note 1) 923 1,306
Miscellaneous income deductions 799 798
Net loss before income tax expense and
extraordinary items (1,231) (3,024)
Income tax expense 0 0
Net loss before extraordinary items (1,231) (3,024)
Extraordinary items less applicable tax 0 0
Net loss $ (1,231) $ (3.024)
Weighted average number of common shares outstanding 2,168,942 2,168,942
Earnings per common share $( 0.57) $ (1.39)
Cash dividends per common share $ 0.15 $ 0.15
</TABLE>
See notes to condensed financial statements
-4-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED STATEMENT OF CASH FLOWS
AUGUST 3, 1996 & JULY 29, 1995
In Thousands (000 omitted)
July July
1996 1995
<S> <C> <C>
Net Income (loss) $(1,231) $(3,024)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,146 2,306
Deferred gross profit (1,701) (613)
Deferred income taxes (726) 0
Provision for losses on accounts receivable 402 478
Decrease (increase) in assets:
Accounts receivable 10,283 12,059
Inventories (1,965) (902)
Prepaid expenses (113) (71)
Other Assets 0 0
Increase (decrease) in liabilities:
Accounts payable -- trade (658) (2,111)
Accrued liabilities 683 (5,903)
Net cash provided by operating activities 7,120 2,219
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,075) (1,901)
Proceeds from sale of property, plant and equipment 0 1,805
Net cash used in investing activities (2,075) (96)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 500 (4,500)
Additions (reductions) to long-term debt (5,898) 1,380
Principal payments on long-term debt & obligations
under capital leases (1,104) (514)
Stock options exercised and sales of capital stock
(Purchase)Sale of treasury stock 55 8
Cash dividends (649) (645)
Net cash provided by (used in) financing activities (7,096) (4,272)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,051) (2,148)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,698 2,699
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 647 $ 551
</TABLE>
-5-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
Notes to Condensed 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 August 3, 1996 and February 3, 1996 and the results of operations for
the three months ended August 3, 1996 and July 29, 1995, for six months
ended August 3, 1996 and July 29, 1995 and changes in financial position
for three months ended August 3, 1996 and July 29, 1995.
3. The results of operations for the three months period ended August 3,1996
and July 29, 1995 and the six months period ended August 3, 1996 and July
29, 1995 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 February 3, 1996, ZCMI closed the Tri-City Mall 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 now closed Superstition Store in Mesa, Arizona and
the East Bay Mall in Provo, Utah. ZCMI did not open any stores during the
fiscal year ended February 3, 1996. No new stores are planned for closing
or opening during 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 $1,500,000 from inception to completion of the project.
Future estimated capital expenditures include normal equipment replacement
estimated at $500,000 and the completion of the conversion from the IBM
4381 mainframe to an IBM AS/400 computer system. In addition, the South
Towne store will be extensively remodeled at a cost of approximately
$700,000.
It is anticipated that these capital expenditures will be financed by
continuing operations, internally generated funds, the leasing of fixtures
and buildings, and by short-term and long-term debt.
With continued favorable short-term loan rates to the Company and the
expected dollar level of debt financing required, Management still
considers short-term borrowing to be the best strategy to meet its working
capital needs.
2. Liquidity and Capital Resources:
The quick and current ratios are 1.7 and 3.9, respectively for the second
quarter 1996 as compared to 1.9 and 3.6 for the same time period in 1995.
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 more than
adequate to handle the borrowing requirements for the above mentioned
items.
(Continued on page 8)
-7-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED INCOME STATEMENT
(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 short-term debt
while long term borrowing has greatly decreased. Inventories increased
because of the seasonal trend in inventory levels.
4. Interim Period Reporting:
Comparisons between the second 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 second 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
second quarter.
Sales increased by 2.5% in the second quarter of 1996 over the second
quarter of 1995.
Cost of goods sold have remained steady at 69.19% for the three month
period ended August 3, 1996 as compared to 69.22% for the same period for
1995. Markdowns have decreased slightly to 18.0% of sales as of August 3,
1996 as compared to 18.3% during the same period ending on July 29, 1995.
Selling, general, and administrative expenses have decreased as a percent
of sales. As of August 3, 1996, they were 31.51% of sales while they
were 32.53% of sales as of July 29, 1995.
For the first six months of 1996, cost of goods sold remained steady as a
percent of sales at 68.9%, which is unchanged from the same time period
in 1995. Selling, general, and administrative expenses decreased
significantly to 31.97% as a percent of sales as compared to 33.39% for
the first six months of 1995.
Operating expenses decreased in the second quarter of 1996. Pension and
health insurance expenses have decreased in the second quarter. Interest
income has increased over last year while at the same time,
(Continued on page 9)
-8-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED INCOME STATEMENT
(Continued from page 8)
interest expense has decreased. Payroll has decreased during the year
even during times when there is great pressures to make payrolls
competitive in the prime market areas of ZCMI.
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. These amounts
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 August 3, 1996.
2. There were no securities of the Company sold by the Company during
the three months ended August 3, 1996 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 September 12, 1996 Keith C. Saunders
Keith C. Saunders
Executive Vice President-CFO
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 647,000
<SECURITIES> 0
<RECEIVABLES> 41,807,000
<ALLOWANCES> (1,770,000)
<INVENTORY> 47,842,000
<CURRENT-ASSETS> 91,976,000
<PP&E> 63,089,000
<DEPRECIATION> (29,886,000)
<TOTAL-ASSETS> 125,777,000
<CURRENT-LIABILITIES> (23,748,000)
<BONDS> 0
0
0
<COMMON> (2,000)
<OTHER-SE> (49,236,000)
<TOTAL-LIABILITY-AND-EQUITY> (125,777,000)
<SALES> 107,515,000
<TOTAL-REVENUES> 110,322,000
<CGS> (74,091,000)
<TOTAL-COSTS> (108,474,000)
<OTHER-EXPENSES> (799,000)
<LOSS-PROVISION> (198,000)
<INTEREST-EXPENSE> (2,116,000)
<INCOME-PRETAX> (1,231,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,231,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,231,000)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
</TABLE>
