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, 1997
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 2,201,947 shares
Other shares, none
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
INDEX
TITLE PAGE NO.
Balance Sheet 1
August 2, 1997 & February 1, 1997
Statement of Income 3
Three Months Ended August 2, 1997 & August 3, 1996
Statement of Income 4
Six Months Ended August 2, 1997 & August 3, 1996
Condensed Statement of Cash Flows 5
Three Months Ended August 2, 1997 and August 3,1996
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of the 7
Condensed Income Statements
Other Information 10
Signatures 11
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEET - AUGUST 2, 1997 & FEBRUARY 1, 1997
In Thousands (000 omitted)
ASSETS AND OTHER DEBITS
Current Assets:
JULY JANUARY
1997 1997
<S> <C> <C>
Cash and cash items $ 367 $ 1,467
Accounts and Notes Receivable 41,235 51,908
Less allowance for doubtful accounts 1,904 1,334
Net Accounts Receivable and Notes Receivable 39,331 50,574
Inventories:
Finished goods - LIFO cost, retail method 47,649 48,180
Supplies - FIFO cost 1,874 883
Prepaid Expenses 1,255 1,107
Deferred Income Taxes 1,484 1,483
Total Current Assets $91,960 103,694
Property:
Property, plant and equipment $35,804 $33,573
Less accumulated depreciation, depletion
and amortization of property, plant & equip. 13,036 11,687
Capital Leases, Net Accumulated Amortization
(Note 1) 10,420 11,216
Total Property - Net $33,188 $33,102
Other Assets and Deferred Charges:
Other Assets 322 322
Investment in Subsidiary 304 304
LT Note Receivable 600 0
TOTAL ASSETS AND OTHER DEBITS $126,374 $137,422
</TABLE>
See Notes to condensed financial statements
-1-
<PAGE>
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEET - AUGUST 2, 1997 & FEBRUARY 1, 1997
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
JULY JANUARY
1997 1997
<S> <C> <C>
Current Liabilities:
Accounts payable - trade $ 3,989 $ 9,270
Short term borrowings - banks 7,000 10,000
Current portion of long-term debt 356 340
Current portion of obligations under capital
leases 1,690 1,864
Accrued liabilities
Outstanding gift certificates 1,840 1,935
Other accrued liabilities 8,299 12,466
Deferred gain on sale and leaseback 1,924 1,924
Total Current Liabilities $25,098 $37,799
Long-Term Debt:
Bonds, mortgages and similar debt 33,064 26,246
Capital Lease - Long Term Portion (Note 1) 15,952 16,709
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes (196) (196)
Deferred Gross Profit 4,131 5,090
Stockholders Equity:
Capital shares $14,712 $14,818
Pension Liability Adjustment (1,808) (1,808)
Other stockholders equity 35,421 38,764
Total Stockholders Equity $48,325 $51,774
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $126,374 $137,422
</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 2, 1997 & AUGUST 3,1996
In Thousands (000 omitted)
1997 1996
<S> <C> <C>
Net Sales $52,561 $53,432
Cost of goods sold, direct merchandising and
buying costs 35,712 36,973
Other revenues 1,250 1,225
Other costs and expenses applicable to other revenue
0 0
Selling, general and administrative expenses 18,488 16,841
Provision for doubtful accounts and notes 229 177
Other Income:
Miscellaneous other income 107 112
Income Deductions:
Interest and amortization of debt discount and
expenses 525 598
Interest Expense on Capital Leases (Note 1) 365 462
Miscellaneous income deductions 408 405
Net loss before income tax expense and
extraordinary items $(1,809) $ (687)
Income tax expense 0 0
Netloss before extraordinary items $(1,809) $ (687)
Extraordinary items less applicable tax 0 0
Net Loss $(1,809) $ (687)
Weighted avg number of common shares o/s 2,201,947 2,168,942
Earnings per common share $ (0.82) $ (0.32)
Cash dividends per common share $ 0.16 $ 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 2, 1997 & AUGUST 3, 1996
In Thousands (000 omitted)
1997 1996
<S> <C> <C>
Net Sales $106,901 $107,515
Cost of goods sold, direct merchandising and
buying costs 72,606 74,091
Other revenues 2,662 2,807
Other costs and expenses applicable to other rev. 0 0
Selling, general and administrative expenses 36,781 34,383
Provision for doubtful accounts and notes 481 362
Other Income:
Miscellaneous other income 275 198
Income Deductions:
Interest and amortization of debt discount
and expenses 1,129 1,193
Interest Expense on Capital Leases (Note 1) 728 923
Miscellaneous income deductions 773 799
Net loss before income tax expense and
extraordinary items (2,640) (1,231)
Income tax expense 0 0
Net loss before extraordinary items (2,640) (1,231)
Extraordinary items less applicable tax 0 0
Net loss $ (2,640) $ (1.231)
Weighted avg number of common shares o/s 2,201,947 2,168,942
Earnings per common share $( 1.20) $ (0.57)
Cash dividends per common share $ 0.16 $ 0.15
</TABLE>
See notes to condensed financial statements
-4-
<TABLE>
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED STATEMENT OF CASH FLOWS
AUGUST 2, 1997 & AUGUST 3, 1997
In Thousands (000 omitted)
July July
1997 1996
<S> <C> <C>
Net Income (loss) $(2,640) $(1,231)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,167 2,146
Deferred gross profit (2,883) (1,701)
Deferred income taxes 0 ( 726)
Provision for losses on accounts receivable 461 402
Decrease (increase) in assets:
Accounts receivable 10,782 10,283
Inventories (462) (1,965)
Prepaid expenses (148) (113)
Other Assets 0 0
Increase (decrease) in liabilities:
Accounts payable -- trade (5,280) (658)
Accrued liabilities (2,337) 682
Net cash provided by operating activities (340) 7,119
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,252) (2,075)
Proceeds from sale of FF & E 0 0
Net cash used in investing activities (2,252) (2,075)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (3,000) 500
Additions (reductions) to long-term debt 6,819 (5,898)
Principal payments on long-term debt & obligations
under capital leases (916) (1,104)
Stock options exercised and sales of capital stock
(Purchase)Sale of treasury stock (106) 55
Cash dividends (705) (649)
Long Term Investments (600)
Net cash provided by (used in) fin. activities 1,492 (7,096)
NET INCR. (DECREASE) IN CASH AND CASH EQUIVALENTS (1,100) (2,051)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,467 2,698
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 367 $ 647
</TABLE>
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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 2, 1997 and February 1, 1997 and the results of operations
for the three months ended August 2, 1997 and August 3, 1996, for six
months ended August 2, 1997 and August 3, 1996 and changes in financial
position for three months ended August 2, 1997 and August 3, 1996.
3. The results of operations for the three months period ended August
2,1997 and August 3, 1996 and the six months period ended August 2, 1997
and August 3, 1996 are not necessarily indicative of the results to be
expected for the full year.
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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 in the process of adding an additional 40,000 square feet
of space to the Layton Hills store. The cost to ZCMI for this addition
will be approximately $4,200,000. In addition, the South Towne store
remodel has been completed at an approximate cost of $700,000. The
Company has also completed the conversion of IBM 4831 mainframe computer
to the IBM AS/400 computer. Future estimated capital expenditures
including normal equipment replacement are estimated at $500,000. The
Company is presently evaluating opportunities for expansion of current
locations and opportunities for new store locations. Capital
expenditure costs will be influenced by those evaluations.
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 1.6 and 3.7, respectively for the
second quarter 1997 as compared to 1.7 and 3.9 for the same time period
in 1996. 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 purchases of inventory has increased short-term debt
while long-term borrowing has greatly decreased. Inventories decreased
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:
<TABLE>
PERCENT OF NET SALES
THREE MONTHS ENDED
Aug 2, 1997 Aug 3, 1996
<S> <C> <C>
Net Sales 100.0% 100.0%
Other Income, net 2.4 2.3
102.4 102.3
Costs and expenses:
Costs & merchandise sold 67.9 69.2
Selling, general & admin. 35.2 31.5
Income(loss) from operations (0.7) 1.6
Interest expense, net (2.7) (2.9)
Net loss (3.4) (1.3)
</TABLE>
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.
(Continued on page 9)
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<PAGE>
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED INCOME STATEMENT
(Continued from page 8)
Sales decreased by 1.6% in the second quarter of 1997 over the second
quarter of 1996.
Cost of goods sold has decreased to 67.94% for the three month period
ended August 2, 1997 as compared to 69.19% for the same period for 1996.
Markdowns have increased slightly to 18.3% of sales as of August 2, 1997
as compared to 18.0% during the same period ending on August 3, 1996.
Selling, general, and administrative expenses have increased as a
percent of sales. As of August 2, 1997, they were 35.17% of sales while
they were 31.52% of sales as of August 3, 1996.
For the first six months of 1997, cost of goods sold declined slightly
as a percent of sales to 67.9%, as compared to 68.9% for the same time
in 1996. Selling, general, and administrative expenses increased
significantly to 34.41% for the first six months of 1997 as a percent
of sales as compared to 31.98% for the first six months of 1996.
Operating expenses increased during the second quarter of 1997 and for
the first six months of the year. Pension and health insurance expenses
have increased during the first half of 1997 due to increased medical
costs. Provisions for bad debts has increased during the first six
months due to an increasing number of bankruptcies and charge offs.
Payroll has increased during the year due to the rise in minimum wages.
The increase in payroll also comes during a time when there are great
pressures to make payrolls competitive in the prime market areas of
ZCMI. Depreciation expense has also increased greatly during the first
half of the year due to an increase in pruchased equipment and fixtures
during the past year.
"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-
<PAGE>
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 2, 1997.
2. There were no securities of the Company sold by the Company during
the three months ended August 2, 1997 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-
<PAGE>
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, 1997 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-01-1998
<PERIOD-END> AUG-03-1997
<CASH> 367,000
<SECURITIES> 0
<RECEIVABLES> 41,235,000
<ALLOWANCES> 1,904,000
<INVENTORY> 47,649,000
<CURRENT-ASSETS> 91,960,000
<PP&E> 67,169,000
<DEPRECIATION> 33,981,000
<TOTAL-ASSETS> 126,374,000
<CURRENT-LIABILITIES> 25,098,000
<BONDS> 49,016,000
0
0
<COMMON> 14,712,000
<OTHER-SE> 33,613,000
<TOTAL-LIABILITY-AND-EQUITY> 126,374,000
<SALES> 106,901,000
<TOTAL-REVENUES> 109,563,000
<CGS> 72,606,000
<TOTAL-COSTS> 109,387,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 481,000
<INTEREST-EXPENSE> 1,857,000
<INCOME-PRETAX> (2,640,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,640,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,640,000)
<EPS-PRIMARY> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
