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 1, 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 2,204,984 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 1, 1997 & Nov 2, 1996
Condensed Income Statement 4
Nine Months Ended Nov 1, 1997 & Nov 2, 1996
Statements of Cash Flows 5
Three Months Ended Nov 1, 1997 & Nov 2, 1996
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 1, 1997 & FEBRUARY 1, 1997
In Thousands (000 omitted)
<TABLE>
ASSETS AND OTHER DEBITS
Current Assets: OCTOBER JANUARY
1997 1997
<S> <C> <C>
Cash and short term investments $ 693 $ 1,467
Accounts and Notes Receivable 43,737 51,908
Less allowance for doubtful accounts 2,286 1,334
Net Accounts Receivable and Notes Receivable 41,451 50,574
Inventories:
Finished goods 57,783 48,180
Supplies 2,105 883
Deferred income taxes 1,172 1,107
Prepaid Expenses 1,483 1,483
Total Current Assets $104,687 $103,694
Property:
Property, plant and equipment $ 35,376 $ 33,573
Less accumulated depreciation, depletion
and amortization of property, plant and
equipment 13,779 11,687
Capital Leases, Net Accumulated Amortization
(Note 1) 10,021 11,216
Total Property $ 31,618 $ 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 $137,531 $137,422
</TABLE>
See notes to financial statements
-1-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - NOVEMBER 1, 1997 & FEBRUARY 1, 1997
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
OCTOBER JANUARY
1997 1997
Current Liabilities:
<S> <C> <C>
Accounts payable - trade $ 7,278 $ 9,270
Short term borrowings - banks 9,101 10,000
Current portion of long-term debt 544 340
Current portion of obligations under
capital leases 1,602 1,864
Accrued liabilities
Outstanding gift certificates 1,927 1,935
Other accrued liabilities 11,346 12,466
Deferred gain on sale and leaseback 1,924 1,924
Total Current Liabilities $ 33,722 $ 37,799
Long-Term Debt:
Bonds, mortgages and similar debt 37,791 26,246
Capital Lease - Long Term Portion (Note 1) 15,574 16,709
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes (196) (196)
Deferred Gross Profit 3,651 5,090
Stockholders Equity:
Capital shares $ 14,732 $ 14,818
Pension Liability Adjustment (1,808) (1,808)
Retained Earnings 34,065 38,764
Total Stockholders Equity $ 46,989 $ 51,774
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $137,531 $137,422
</TABLE>
See notes to financial statements
-2-
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENT OF OPERATIONS
FOR THREE MONTHS ENDED NOVEMBER 1, 1997 & NOVEMBER 2, 1996
In Thousands (000 omitted)
1997 1996
<S> <C> <C>
Net Sales $ 60,577 $ 61,237
Cost of goods sold, direct merchandising and
buying costs 42,401 42,333
Other revenues 1,430 1,354
Other costs and expenses applicable to other revenue
Selling, general and administrative expenses 18,915 19,192
Provision for doubtful accounts and notes 356 249
Other Income:
Miscellaneous other income 149 87
Income Deductions:
Interest and amortization of debt discount and
expenses 756 625
Interest Expense on Capital Leases (Note 1) 364 462
Miscellaneous income deductions 373 408
Net loss before income tax expense
and extraordinary items $ (1,009) (591)
Income tax expense 0 0
Net loss before extraordinary items $ (1,009) $ (591)
Extraordinary items less applicable tax 0 0
Net Loss $ (1,009) $ (591)
Weighted average number of common shares outstanding 2,204,984 2,168,942
Earnings per common share ($ 0.46) ($ 0.27)
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
STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED NOVEMBER 1, 1997 & NOVEMBER 2, 1996
In Thousands (000 omitted)
1997 1996
<S> <C> <C>
Net Sales $167,478 $168,752
Cost of goods sold, direct merchandising and
buying costs 115,007 116,424
Other revenues 4,092 4,161
Other costs and expenses applicable to other revenue
Selling, general and administrative expenses 55,696 53,575
Provision for doubtful acounts and notes 817 611
Other Income:
Miscellaneous other income 424 285
Income Deductions:
Interest and amortization of debt discount
and expenses 1,885 1,818
Interest Expense on Capital Leases (Note 1) 1,092 1,385
Miscellaneous income deductions 1,146 1,207
Net loss before income tax expense
and extraordinary items (3,649) (1,822)
Income tax expense 0 0
Net loss before extraordinary items $ (3,649) $ (1,822)
Extraordinary items less applicable tax 0 0
Net Loss $ (3,649) $ (1,822)
Weighted average number of common shares outstanding 2,204,984 2,168,942
Earnings per common share $ (1.65) $ (0.84)
Cash dividends per common share $ 0.16 $ 0.15
</TABLE>
See notes to financial statements
-4-
<TABLE>
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED NOVEMBER 1, 1997 & NOVEMBER 2, 1996
In Thousands (000 omitted)
OCTOBER OCTOBER
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $(3,649) $(1,823)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,364 3,272
Deferred gross profit (3,362) (2,110)
Deferred income taxes 0 (726)
Provision for losses on accounts receivable 817 692
Decrease (increase) in assets:
Accounts receivable 8,306 7,266
Inventories (10,826) (14,718)
Prepaid expenses (64) 42
Other assets 0 0
Increase (decrease) in liabilities:
Accounts payable - trade 3,109 4,184
Accrued liabilities 797 1,594
Net cash provided by operating activities (1,508) (2,326)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,880) (2,279)
Proceeds from sale of property,
plant, and equipment 0 0
Net cash used in investing activities (1,880) (2,279)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (6,000) 2,500
Additions to (from) long-term debt 11,544 2,457
Principal payments on long-term debt &
obligations under capital leases (1,193) (1,643)
Stock options exercised and sales of capital stock
Purchase of treasury stock (112) 0
Sale of treasury stock 25 62
Cash dividends (1,050) (981)
Long Term Investments (600) 0
Net cash provided by (used in) financing activities 2,614 2,395
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (774) (2,210)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,467 2,698
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 693 $ 488
</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 1, 1997 and February 1, 1997 and the results of operations for
the three months ended November 1, 1997 and November 2, 1996, for nine
months ended November 1, 1997 and November 2, 1996 and changes in
financial position for three months ended November 1, 1997 and November 2,
1996.
3. The results of operations for the three months period ended November 1,
1997 and November 2, 1996 and the nine months period ended November 1,
1997 and November 2, 1996 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 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 with a completion date in early December 1997.
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 4381 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 oppportunities 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 1.2 and 3.1, respectively for the third
quarter 1997 as compared to 1.4 and 3.4 for the same time period in 1996.
This indicates that the Company's liquidity remains 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
(Continued on page 8)
-7-
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED INCOME STATEMENTS
(Continued from page 7)
($54,000,000) are adequate to handle the borrowing 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 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:
<TABLE>
PERCENT OF NET SALES
THREE MONTHS ENDED NINE MONTHS ENDED
Nov 1,1997 Nov 2,1996 Nov 1,1997 Nov 2,1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Other income, net 2.4 2.2 2.4 2.5
102.4 102.2 102.4 102.5
Costs and expenses:
Costs and merchandise sold 70.0 69.1 68.7 69.0
Selling,general & admin 31.2 31.8 33.3 32.2
Income(loss) from oper. 1.2 1.3 0.4 1.3
Interest expense, net 2.9 2.3 2.6 2.4
Net loss (1.7) (1.0) (2.2) (1.1)
</TABLE>
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
sesonal 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.
(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)
Sales decreased by 1.1% in the third quarter of 1997 over the third
quarter of 1996.
Cost of goods sold increased slightly to 70.00% for the three month
period ended November 1, 1997 as compared to the same period for 1996.
Markdowns have increased slightly to 18.2% of sales as of November 1,
1997 as compared to 18.0% of sales on November 2, 1996. Selling,
general, and administrative expenses have remained quite comparable as
a percent of sales. As of November 1, 1997, they were 31.22% of sales
while they were 31.34% of sales as of November 2, 1996.
For the first nine months of 1997, cost of goods sold as a percent of
sales decreased ever so slightly to 68.7%, while for the same time
period in 1996 cost of goods sold as a percent of sales was 69.0%.
Selling, general, and administrative expenses increased to 33.3% as a
percent of sales.
Operating expenses were comparable to last year, as a percent of sales,
during the third quarter of 1997 and increased slightly for the first
nine months of the year. Pension and health insurance expenses have
increased during the first half of 1997 due to increased medical costs.
Provision 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 purchased 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-
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 1, 1997.
2. There were no securities of the Company sold by the Company during
the three months ended November 1, 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-
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 9, 1997 Keith C. Saunders
Keith C. Saunders,
Executive Vice President - CFO
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 693,000
<SECURITIES> 0
<RECEIVABLES> 43,737,000
<ALLOWANCES> 2,286,000
<INVENTORY> 59,888,000
<CURRENT-ASSETS> 104,687,000
<PP&E> 66,356,000
<DEPRECIATION> 34,738,000
<TOTAL-ASSETS> 137,531,000
<CURRENT-LIABILITIES> 33,722,000
<BONDS> 37,791,000
0
0
<COMMON> 14,732,000
<OTHER-SE> 32,257,000
<TOTAL-LIABILITY-AND-EQUITY> 137,531,000
<SALES> 167,478,000
<TOTAL-REVENUES> 171,570,000
<CGS> 115,007,000
<TOTAL-COSTS> 170,703,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 817,000
<INTEREST-EXPENSE> 2,977,000
<INCOME-PRETAX> (3,649,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,649,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,649,000)
<EPS-PRIMARY> (1.65)
<EPS-DILUTED> (1.65)
</TABLE>
