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 November 2, 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.
Condensed Balance Sheet 1
Condensed Income Statement 3
Three Months Ended Nov 2, 1996 & Oct 28, 1995
Condensed Income Statement 4
Nine Months Ended Nov 2, 1996 & Oct 28, 1995
Statements of Cash Flows 5
Three Months Ended Nov 2, 1996 & Oct 28, 1995
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
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - NOVEMBER 2, 1996 & FEBRUARY 3, 1996
In Thousands (000 omitted)
<TABLE>
ASSETS AND OTHER DEBITS
Current Assets: OCTOBER JANUARY
1996 1996
<S> <C> <C>
Cash and short term investments $ 488 $ 2,698
Accounts and Notes Receivable 44,789 52,028
Less allowance for doubtful accounts 2,061 1,307
Net Accts Rec. and Notes Receivable 42,728 50,721
Inventories:
Finished goods 58,500 44,766
Supplies 2,096 1,111
Deferred income taxes 2,016 1,321
Prepaid Expenses 1,279 2,016
Total Current Assets $107,107 $102,633
Property:
Property, plant and equipment $ 31,871 $ 29,683
Less accumulated depreciation, depletion
and amortization of property, plant and
equipment 11,273 9,660
Capital Leases, Net Accumulated Amortization
(Note 1) 11,677 13,251
Total Property $ 32,275 $ 33,274
Other Assets and Deferred Charges
Other Assets 322 294
Investment in Subsidiary 304 304
TOTAL ASSETS AND OTHER DEBITS $140,008 $136,505
</TABLE>
See notes to financial statements
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - NOVEMBER 2, 1996 & FEBRUARY 3, 1996
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
<TABLE>
OCTOBER JANUARY
1996 1996
Current Liabilities:
<S> <C> <C>
Accounts payable - trade $ 7,283 $ 7,370
Short term borrowings - banks 9,272 2,500
Current portion of long-term debt 332 311
Current portion of obligations under
capital leases 2,233 2,291
Accrued liabilities
Outstanding gift certificates 1,441 1,611
Reserve for store closings 205 205
Other accrued liabilities 9,117 8,960
Deferred gain on sale and leaseback 1,608 1,608
Total Current Liabilities $ 31,491 $ 24,856
Long-Term Debt:
Bonds, mortgages and similar debt 40,343 37,886
Capital Lease - L. Term Portion (Note 1) 16,901 18,520
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes 683 683
Deferred Gross Profit 2,270 3,498
Stockholders Equity:
Capital shares $ 14,799 $ 14,731
Pension Liability Adjustment (1,909) (1,909)
Retained Earnings 35,430 38,240
Total Stockholders Equity $ 48,320 $ 51,062
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $140,008 $136,505
</TABLE>
See notes to financial statements
-2-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENT OF OPERATIONS
FOR THREE MONTHS ENDED NOVEMBER 2, 1996 & OCTOBER 28, 1995
In Thousands (000 omitted)
<TABLE>
1996 1995
<S> <C> <C>
Net Sales $ 61,237 $ 58,853
Cost of goods sold, direct merchandising and
buying costs 42,333 40,836
Other revenues 1,354 1,397
Other costs and expenses applicable to other revenue
Selling, general and administrative expenses 19,192 18,784
Provision for doubtful accounts and notes 249 250
Other Income:
Miscellaneous other income 87 215
Income Deductions:
Interest and amortization of debt discount and
expenses 625 696
Interest Expense on Capital Leases (Note 1) 462 654
Miscellaneous income deductions 408 197
Net loss before income tax expense
and extraordinary items $ (591) (952)
Income tax expense 0 0
Net loss before extraordinary items $ (591) $ (952)
Extraordinary items less applicable tax 0 0
Net Loss $ (591) $ (952)
Weighted avg number of common shares o/s 2,168,942 2,168,942
Earnings per common share ($ 0.27) ($ .44)
Cash dividends per common share $ 0.15 $ 0.15
</TABLE>
See notes to condensed financial statements
-3-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED NOVEMBER 2, 1996 & OCTOBER 28, 1995
In Thousands (000 omitted)
<TABLE>
1996 1995
<S> <C> <C>
Net Sales $168,752 $161,408
Cost of goods sold, direct merchandising and
buying costs 116,424 111,461
Other revenues 4,161 4,274
Other costs and expenses applicable to other revenue
Selling, general and administrative expenses 53,575 53,035
Provision for doubtful acounts and notes 611 571
Other Income:
Miscellaneous other income 285 495
Income Deductions:
Interest and amortization of debt discount
and expenses 1,818 2,130
Interest Exp. on Capital Leases (Note 1) 1,385 1,960
Miscellaneous income deductions 1,207 966
Net loss before income tax expense
and extraordinary items (1,822) (3,976)
Income tax expense 0 0
Net loss before extraordinary items $ (1,822) $ (3,976)
Extraordinary items less applicable tax 0 0
Net Loss $ (1,822) $ (3,976)
Weighted avg number of common shares o/s 2,168,942 2,168,942
Earnings per common share $ (0.84) $ (1.83)
Cash dividends per common share $ 0.15 $ 0.15
</TABLE>
See notes to financial statements
-4-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED NOVEMBER 2, 1996 & OCTOBER 28, 1995
In Thousands (000 omitted)
<TABLE>
OCTOBER OCTOBER
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $(1,823) $(3,976)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,272 3,485
Deferred gross profit (2,110) (920)
Deferred income taxes (726) 0
Provision for losses on accounts receivable 692 571
Decrease (increase) in assets:
Accounts receivable 7,266 10,667
Inventories (14,718) (12,962)
Prepaid expenses 42 ( 26)
Other assets 0 0
Increase (decrease) in liabilities:
Accounts payable - trade 4,184 4,896
Accrued liabilities 1,594 (5,039)
Net cash provided by operating activities (2,326) (3,304)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,279) (2,790)
Proceeds from sale of property,
plant, and equipment 0 1,805
Net cash used in investing activities (2,279) ( 985)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decr.) in short-term borrowings 2,500 ( 500)
Additions to (from) long-term debt 2,457 4,553
Principal payments on long-term debt &
obligations under capital leases (1,643) ( 917)
Stock options exercised and sales of capital stock
Purchase of treasury stock 62 53
Sale of treasury stock
Cash dividends (981) (968)
Net cash provided by (used in) fin. activities 2,395 2,221
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,210) (2,068)
CASH AND CASH EQUIVALENTS AT BEG. OF PERIOD 2,698 2,699
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 488 $ 631
</TABLE>
-5-
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 November 2, 1996 and February 3, 1996 and the results of operations for
the three months ended November 2, 1996 and October 28, 1995, for nine months
ended November 2, 1996 and October 28, 1995 and changes in financial
position for three months ended November 2, 1996 and October 28, 1995.
3.The results of operations for the three months period ended November 2,
1996 and October 28, 1995 and the nine months period ended November 2, 1996
and October 28, 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 Springs Mall 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. In addition, the South Towne store remodel has been completed
at an approximate cost of $700,000.
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.
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 1.4 and 3.4, respectively for the third
quarter 1996 as compared to 1.3 and 3.0 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 ($60,000,000) are adequate to
handle the borrowing requirements for the above mentioned items.
-7-
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 short-term
debt. Inventories increased because of the seasonal trend in inventory
levels.
4.Interim Period Reporting:
The following table summarizes the changes in selected operating
indicators, illustrating the relationships of various income and expense
items to net sales for each period presented:
PERCENT OF NET SALES
THREE NINE
MONTHS ENDED MONTHS ENDED
Nov 2,1996 Oct 28,1995 Nov 2,1996 Oct 28,1996
Net sales 100.0% 100.0% 100.0% 100.0%
Other income, net 2.2 2.4 2.5 2.7
102.3 102.4 102.6 102.7
Costs and expenses:
Costs and merchandise sold
69.1 69.4 69.0 69.2
Selling,general & admin
31.8 32.3 32.2 33.2
Income(loss) from oper.
1.3 0.7 1.3 0.3
Interest expense, net
2.3 2.3 2.4 2.8
Net loss (1.0) (1.6) (1.1) (2.5)
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
(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)
throughout the year. As a result many retailers have net losses in the
third quarter.
Sales increased by 4.1% in the third quarter of 1996 over the third
quarter of 1995.
Cost of goods sold decreased slightly to 69.13% for the three month
period ended November 2, 1996 as compared to the same period for 1995.
Markdowns have decreased slightly to 18.0% of sales as of November 2, 1996
as compared to 18.3% of sales on October 28, 1995. Selling, general, and
administrative expenses have decreased as a percent of sales. As of
November 2, 1996, they were 31.34% of sales while they were 32.33% of sales
as of October 28, 1995.
For the first nine months of 1996, cost of goods sold as a percent of sales
remained steady at 69.0%, while for the same time period in 1995 cost of
goods sold as a percent of sales was 69.1%. Selling, general, and
administrative expenses decreased to 31.8% as a percent of sales.
Operating expenses decreased in the third quarter of 1996 as compared to
the same time period in 1995. Pension and health insurance expenses have
decreased in the third quarter, as well as depreciation expense. Interest
expense has also decreased slightly to help with reduction in expenses as
compared to last year. 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.
"Safe Harbor" Statement
Certain information included in this 10-Q contains statements that are
forward looking. Such forward-looking information involves important risks
and uncertainties that could significantly affect anticipated results in the
future, including, but not limited to, uncertainties affecting retail in
general, such as consumer confidence and demand for soft goods; risks
relating to leverage and debt service; competition within primary markets
in which the Company's stores are located; and the need for, and costs
associated with, store renovations and other capital expenditures.
-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 November 2, 1996.
2.There were no securities of the Company sold by the Company during the
three months ended November 2, 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:December 12, 1996
Keith C. Saunders,
Executive Vice President - CFO
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> NOV-02-1996
<CASH> 488,000
<SECURITIES> 0
<RECEIVABLES> 44,789,000
<ALLOWANCES> 2,061,000
<INVENTORY> 60,596,000
<CURRENT-ASSETS> 107,107,000
<PP&E> 63,236,000
<DEPRECIATION> 30,960,500
<TOTAL-ASSETS> 140,008,000
<CURRENT-LIABILITIES> 31,491,000
<BONDS> 0
0
0
<COMMON> 2,161
<OTHER-SE> 48,317,839
<TOTAL-LIABILITY-AND-EQUITY> 140,008,000
<SALES> 168,752,000
<TOTAL-REVENUES> 172,913,000
<CGS> 116,424,000
<TOTAL-COSTS> 116,424,000
<OTHER-EXPENSES> 53,575,000
<LOSS-PROVISION> 611,000
<INTEREST-EXPENSE> 3,203,000
<INCOME-PRETAX> (1,822,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,822,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,822,000)
<EPS-PRIMARY> (0.84)
<EPS-DILUTED> (0.84)
</TABLE>
