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 May 3, 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 preceding 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
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
INDEX
TITLE PAGE NO.
Condensed Balance Sheet 1
Condensed Income Statement 3
Three Months Ended May 3, 1997 & May 4, 1996
Condensed Statement of Cash Flows 4
May 3, 1997 & May 4, 1996
Notes to Condensed Financial Statements 5
Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Other Information 9
Signatures 10
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - MAY 3, 1997 & FEBRUARY 1, 1997
In Thousands (000 omitted)
ASSETS AND OTHER DEBITS
Current Assets: APRIL JANUARY
1997 1997
<S> <C> <C>
Cash and cash items $ 606 $ 1,467
Accounts and Notes Receivable 46,327 51,908
Less allowance for doubtful accounts 1,623 1,334
Net Accounts Receivable and Notes Receivable 43,704 50,574
Inventories:
Finished goods-LIFO cost, retail method 48,840 48,180
Supplies - FIFO cost 1,628 883
Prepaid Expenses 1,356 1,107
Deferred Income Taxes 1,483 1,483
Total Current Assets $97,617 103,694
Property:
Property, plant and equipment $34,380 $33,573
Less accumulated depreciation, depletion
and amortization of property, plant and
equipment 12,363 11,687
Capital Leases, Net Accumulated Amortization
(Note 1) 10,818 11,216
Total Property $32,835 $33,102
Other Assets and Deferred Charges:
Other Assets 322 322
Investment in Subsidiary 304 304
LT Note Receivable 275 0
TOTAL ASSETS AND OTHER DEBITS $131,353 $137,422
</TABLE>
See notes to condensed financial statements
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - MAY 3, 1997 & FEBRUARY 1, 1997
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
APRIL JANUARY
1997 1997
Current Liabilities:
<S> <C> <C>
Accounts payable - trade $ 4,311 $ 9,270
Short term borrowings - banks 5,525 10,000
Current portion of long-term debt 348 340
Current portion of obligations under capital
leases 1,777 1,864
Accrued liabilities
Outstanding gift certificates 1,907 1,935
Other accrued liabilities 8,946 12,466
Deferred gain on sale and leaseback 1,924 1,924
Total Current Liabilities $ 24,738 $ 37,799
Long-Term Debt:
Bonds, mortgages and similar debt 35,389 26,246
Capital Lease - Long Term Portion (Note 1) 16,331 16,709
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes (196) (196)
Deferred Gross Profit 4,610 5,090
Stockholders Equity:
Capital shares $ 14,706 $ 14,818
Pension Liability Adjustment (1,808) (1,808)
Other stockholders equity 37,583 38,764
Total Stockholders Equity $ 50,481 $ 51,774
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $131,353 $137,422
</TABLE>
See notes to condensed financial statements
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED INCOME STATEMENT THREE MONTHS ENDED May 3, 1997 & MAY 4, 1996
In Thousands (000 omitted)
1997 1996
<S> <C> <C>
Net Sales $54,340 $54,083
Cost of goods sold, direct merchandising and
buying costs 36,893 37,118
Other revenues 1,412 1,582
Other costs and expenses applicable to other revenue 0 0
Selling, general and administrative expenses 18,293 17,542
Provision for doubtful accounts and notes 232 185
Other Income:
Miscellaneous other income 168 86
Income Deductions:
Interest and amortization of debt discount and
expenses 604 595
Interest Expense on Capital Leases (Note 1) 363 461
Miscellaneous income deductions 366 394
Net loss before income tax expense and
extraordinary items $ (831) $ (544)
Income tax expense 0 0
Net loss before extraordinary items $ (831) $ (544)
Extraordinary items less applicable tax 0 0
Net Loss $ (831) $ (544)
Weighted avg. no. of common shares outstanding 2,208,920 2,168,942
Earnings per common share $ (0.38) $ (0.25)
Cash dividends per common share $ 0.16 $ 0.15
</TABLE>
See notes to condensed financial statements
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED STATEMENT OF CASH FLOWS May 3, 1997 & May 4, 1996
In Thousands (000 omitted)
April April
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (loss) $ (831) $ (544)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,094 1,090
Deferred gross profit (2,402) (1,291)
Deferred income taxes 0 (726)
Provision for losses on accounts receivable 232 185
Decrease (increase) in assets:
Accounts receivable 6,638 7,193
Inventories (1,406) (3,564)
Prepaid expenses (249) (440)
Other Assets 0 0
Increase (decrease) in liabilities
Accounts payable -- trade (2,434) (865)
Accrued liabilities (1,622) 923
Net cash provided by operating activities (980) 1,961
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (826) (595)
Proceeds from sale of property, plant and equipment 0 0
Net cash used in investing activities (826) (595)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (7,000) 500
Additions (Reductions) to long-term debt 9,144 (3,120)
Principal payments on long-term debt obligations (458) (552)
under capital leases
Stock options exercised and sales of capital stock (112) 0
(Purchase) Sale of treasury stock 0 45
Cash dividends (353) (324)
Long Term Investments (275) 0
Net cash provided by (used in) financing activities 946 (3,451)
NET INCR. (DECREASE) IN CASH AND CASH EQUIVALENTS (860) (2,086)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,466 2,698
CASH AND CASH EQUIVALENTS AT END OF PERIOD 606 612
</TABLE>
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 2053. 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 up to 67 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 May 3, 1997 and the results of operations for three months ended
May 3, 1997, and May 4, 1996 and changes in financial position for three
months ended May 3, 1997 and May 4, 1996.
3. The results of operations for the three months period ended May 3, 1997
are not necessarily indicative of the results to be expected for the full
year.
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 store
in Mesa, Arizona and the East Bay Mall store 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 $3,000,000. 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
include normal equipment replacement are estimated at $500,000.
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 1.8 and 3.9, respectively for the first
quarter of 1997 as compared with 1.8 and 4.1 during 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 ($53,000,000) are more than
adequate to handle the borrowing
(Continued on page 7)
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued from page 6)
requirements for the above mentioned items.
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:
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
May 4, 1997 May 3, 1997
<S> <C> <C>
Net Sales 100.0% 100.0%
Other Income, net 2.6 2.9
102.6 102.9
Costs and expenses:
Costs & merchandise sold 67.9 68.6
Selling, general & admin. 34.3 33.2
Income(loss) from operations 0.4 1.1
Interest expense, net 1.9 2.1
Net loss (1.5) (1.0)
</TABLE>
Comparisons between the first 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
(Continued on page 8)
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued from page 7)
sales in the fourth quarter versus about 20% in the first 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 first quarter.
Sales increased by 0.5% in the first quarter of 1997 over the first
quarter of 1996.
Costs of goods sold have declined slightly to 67.9% for the three month
period ended May 3, 1997 as compared to 68.6% for the same period for
1996. Markdowns have remained steady at 17.9% of sales as of May 3, 1997
as compared to 17.4% of sales on May 4,1996. Selling, general, and
administrative expenses have increased slightly as a percent of sales.
As of May 3, 1997, they were 33.7% of sales while they were 32.4% of sales
as of May 4, 1996.
Operating expenses increased in the first quarter of 1997 due to an
increase in pension and health insurance expenses. Payroll has also
continued to increase dramatically during the year due to pressures as
competitive payrolls continue to rise in the prime market areas of ZCMI.
Interest income has continued to increase over last year while at the same
time increasing interest expense has offset this increase.
"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.
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 May 3, 1997.
2. There were no securities of the Company sold by the Company during
the three months ended May 3, 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
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 CO-OPERATIVE MERCANTILE INSTITUTION
Date June 13, 1997
Keith C. Saunders, Secretary
Executive Vice President
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 606,000
<SECURITIES> 0
<RECEIVABLES> 46,327,000
<ALLOWANCES> 1,623,000
<INVENTORY> 43,704,000
<CURRENT-ASSETS> 97,617,000
<PP&E> 65,745,000
<DEPRECIATION> 32,910,000
<TOTAL-ASSETS> 131,353,000
<CURRENT-LIABILITIES> 24,738,000
<BONDS> 35,389,000
0
0
<COMMON> 14,706,000
<OTHER-SE> 35,775,000
<TOTAL-LIABILITY-AND-EQUITY> 131,353,000
<SALES> 54,340,000
<TOTAL-REVENUES> 55,752,000
<CGS> 36,893,000
<TOTAL-COSTS> 55,186,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 232,000
<INTEREST-EXPENSE> 967,000
<INCOME-PRETAX> (831,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (831,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (831,000)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
