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 2, 1998
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<PAGE>
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
INDEX
TITLE PAGE NO.
Condensed Balance Sheet 1
Condensed Income Statement 3
Three Months Ended May 2, 1998 & May 3, 1997
Condensed Statement of Cash Flows 4
May 2, 1998 & May 3, 1997
Notes to Condensed Financial Statements 5
Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Other Information 10
Signatures 11
<PAGE>
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - MAY 2, 1998 & JANUARY 31, 1998
In Thousands (000 omitted)
<TABLE>
ASSETS AND OTHER DEBITS
Current Assets: APRIL JANUARY
1998 1998
<S> <C> <C>
Cash and cash items $ 634 $ 1,619
Accounts and Notes Receivable 43,007 50,056
Less allowance for doubtful accounts 1,603 1,286
Net Accounts Receivable and Notes Receivable 41,404 48,770
Inventories:
Finished goods - LIFO cost, retail
method 49,350 48,497
Supplies - FIFO cost 2,241 1,175
Prepaid Expenses 1,311 1,075
Deferred Income Taxes 2,496 2,496
Total Current Assets $97,436 103,632
Property:
Property, plant and equipment $35,224 $37,472
Less accumulated depreciation, depletion
and amortization of property, plant and
equipment 12,174 13,737
Capital Leases, Net Accumulated Amortization
(Note 1) 10,346 10,747
Total Property $33,396 $34,482
Other Assets and Deferred Charges:
Other Assets 322 621
Investment in Subsidiary 304 304
LT Note Receivable 550 0
TOTAL ASSETS AND OTHER DEBITS $132,008 $139,039
</TABLE>
See notes to condensed financial statements
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Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - MAY 2, 1998 & JANUARY 31, 1998
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
APRIL JANUARY
1998 1998
Current Liabilities:
<S> <C> <C>
Accounts payable - trade $ 4,591 $ 9,415
Short term borrowings - banks 0 0
Current portion of long-term debt 381 372
Current portion of obligations under capital
leases 1,576 1,620
Accrued liabilities
Outstanding gift certificates 2,029 2,011
Other accrued liabilities 9,399 12,109
Deferred gain on sale and leaseback 1,801 1,827
Total Current Liabilities $ 19,777 $ 27,354
Long-Term Debt:
Bonds, mortgages and similar debt 44,479 40,772
Capital Lease - Long Term Portion
(Note 1) 15,908 16,285
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes 790 789
Deferred Gross Profit 3,358 3,837
Stockholders Equity:
Capital shares $ 14,740 $ 14,709
Pension Liability Adjustment (2,271) (2,271)
Other stockholders equity 35,227 37,564
Total Stockholders Equity $ 47,696 $ 50,002
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $132,008 $139,039
</TABLE>
See notes to condensed financial statements
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<PAGE>
Form 10-Q
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED INCOME STATEMENT THREE MONTHS ENDED May 2, 1998 & MAY 3, 1997
In Thousands (000 omitted)
1998 1997
<S> <C> <C>
Net Sales $53,930 $54,340
Cost of goods sold, direct merchandising and
buying costs 37,554 36,893
Other revenues 1,552 1,412
Other costs and expenses applicable to
other revenue 0 0
Selling, general and administrative expenses 18,511 18,293
Provision for doubtful accounts and notes 257 232
Other Income:
Miscellaneous other income 487 168
Income Deductions:
Interest and amortization of debt discount and
expenses 679 604
Interest Expense on Capital Leases (Note 1) 402 363
Miscellaneous income deductions 549 366
Net loss before income tax expense and
extraordinary items $(1,983) $ (831)
Income tax expense 0 0
Net loss before extraordinary items $(1,983) $ (831)
Extraordinary items less applicable tax 0 0
Net Loss $(1,983) $ (831)
Weighted average number of common shares
outstanding 2,199,437 2,208,920
Earnings per common share $ (0.90) $ (0.38)
Cash dividends per common share $ 0.16 $ 0.16
</TABLE>
See notes to condensed financial statements
-3-
<TABLE>
<PAGE>
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
CONDENSED STATEMENT OF CASH FLOWS MAY 2, 1998 & May 3, 1997
In Thousands (000 omitted)
April April
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (loss) $(1,984) $ (831)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,080 1,094
Deferred gross profit (2,306) (2,403)
Deferred income taxes 0 0
Provision for losses on accounts receivable 257 232
Decrease (increase) in assets:
Accounts receivable 7,109 6,638
Inventories (1,919) (1,406)
Prepaid expenses (237) (249)
Other Assets 0 0
Increase (decrease) in liabilities
Accounts payable -- trade (2,372) (2,434)
Accrued liabilities (890) (1,622)
Net cash provided by operating activities (1,262) (980)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,151) (826)
Proceeds from sale of property, plant and
equipment 3,156 0
Net cash used in investing activities 5 (826)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 0 (7,000)
Additions (Reductions) to long-term debt 1,256 9,144
Principal payments on long-term debt obligations
under capital leases (412) (458)
Stock options exercised and sales of capital stock 0 (112)
(Purchase) Sale of treasury stock 31 0
Cash dividends (352) (353)
Long Term Investments 300 0
Long Term Note Receivable (550) (275)
Net cash provided by (used in) financing activities 273 946
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (985) (862)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,619 1,467
CASH AND CASH EQUIVALENTS AT END OF PERIOD 634 606
</TABLE>
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<PAGE>
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 2, 1998 and the results of operations for three months ended
May 2, 1998, and May 3, 1997 and changes in financial position for three
months ended May 2, 1998 and May 3, 1997.
3. The results of operations for the three months period ended May 2,
1998 are not necessarily indicative of the results to be expected for
the full year.
<PAGE>
FORM 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. Prospective Information:
Construction for ten months in front of the flagship ZCMI store, as well
as continuing construction on the main interstate freeway in Salt Lake
City contributed to a lackluster sales year for 1997 and a slow first
quarter of 1998. However, as a result of expense control and despite
an increase in the minimum wage, ZCMI still managed to attain a profit
in 1997 in a tough retailing market.
Continuing construction on the major freeway in the Salt Lake Valley
along with commuter transit construction near the flagship store in
Downtown Salt Lake City will likely have an effect on sales in that
location for approximately three additional years. Our emphasis will
be to continue building market share in the moderate and better price
points while positioning quality opening price points with name-brand
lines.
The East Bay Mall store closed on April 25, 1998. This store had been
converted to an outlet store during fiscal 1992. No new stores are
planned for opening during the current fiscal year.
Capital expenditures during fiscal 1997 consisted of a major addition
to the Layton Hills store. An additional 38,000 square feet was added
to the store based on a lease option with the mall. The project was
substantially finished by December 15, 1997 with the exception of new
fixturing that was installed during February 1998. Also, new Polo shops
were constructed in the Downtown and Cottonwood stores in addition to
smaller remodeling projects. Lastly, a new database marketing system
and a software system to further automate receiving functions were also
implemented.
Future estimated capital expenditures include normal equipment and
fixture replacement estimated at $1,000,000 and the completion of a
42,000 square foot expansion and complete remodel of the University Mall
store. The University Mall store which is presently owned, will be sold
and leased back to the mall, and that transaction, together with
incentives from the city of Orem and mall developer, is estimated to
cover all costs except approximately $2,500,000 of the expansion and
remodeling cost.
(Continued on page 7)
<PAGE>
FORM 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued from page 6)
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 2.1 and 4.9, respectively for the first
quarter of 1998 as compared with 1.8 and 3.9 during 1997. 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 ($54,000,000) are more than
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 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:
(Continued on page 8)
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<PAGE>
FORM 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued from page 7)
<TABLE>
Percent of Net Sales
THREE MONTHS ENDED
May 2, 1998 May 3, 1997
<S> <C> <C>
Net Sales 100.0% 100.0%
Other Income, net 2.9 2.6
102.9 102.6
Costs and expenses:
Costs & merchandise sold 69.6 67.9
Selling, general & admin. 34.3 33.7
Income(loss) from
operations (1.0) 0.4
Interest expense, net 2.7 1.9
Net loss (3.7) (1.5)
</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 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 decreased by 0.8% in the first quarter of 1998 over the first
quarter of 1997.
Costs of goods sold have increased to 69.6% for the three month period
ended May 2, 1998 as compared to 67.9% for the same period for 1997. A
major cause of this increase was due to markdowns increasing to 20.6% of
sales as of May 2, 1998 as compared to 17.9% of sales on May 3,1997.
Selling, general, and administrative expenses have increased slightly
as a percent of sales. As of May 2, 1998, they were 34.3% of sales while
they were 33.7% of sales as of May 3, 1997.
Operating expenses increased in the first quarter of 1998 due
(Continued on page 9)
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<PAGE>
FORM 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued from page 8)
mainly to an increase in payroll and bad debt expenses. Payroll has
continued to increase dramatically during the year due to an increase in
the minimum wage in September 1997 along with competitive wages that
continue to rise in the prime market areas of ZCMI. Interest income has
continued to increase over last year as a result of changes in interest
rates on accounts, while at the same time interest expense incurred from
borrowing has offset this increase.
Year 2000 Issues
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. System
failures or miscalculations could result from programs recognizing dates
using "00" as the year 1900 rather than the year 2000. During fiscal
1997, ZCMI has tested various programs and has communicated with major
suppliers to determine the extent that this issue will affect the
Company's operations. ZCMI has determined that the extent of the effect
on the Company is minimal, due to the recent conversion in computer
hardware to the AS/400 system and the total rewrite of programs at that
time. There are numerous systems involved in this issue, however, and
ZCMI has numerous suppliers which interface with systems in use. ZCMI
anticipates that projects converting any remaining problems with older
software or outside purchased equipment as well as POS terminal programs
and all other types of equipment which may be affected will be completed
prior to October 1999. The costs of these conversions will be expensed
during the normal course of business and are not expected to be material.
"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.
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<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 May 2, 1998.
2. There were no securities of the Company sold by the Company
during the three months ended May 2, 1998 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 CO-OPERATIVE MERCANTILE INSTITUTION
Date June 10, 1998 Keith C. Saunders
Keith C. Saunders, Secretary
Executive Vice President
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> MAY-02-1998
<CASH> 634,000
<SECURITIES> 0
<RECEIVABLES> 44,610,000
<ALLOWANCES> (1,603,000)
<INVENTORY> 51,591,000
<CURRENT-ASSETS> 97,436,000
<PP&E> 59,795,000
<DEPRECIATION> (26,399,000)
<TOTAL-ASSETS> 132,008,000
<CURRENT-LIABILITIES> (19,777,000)
<BONDS> 0
0
0
<COMMON> (2,154)
<OTHER-SE> (47,693,846)
<TOTAL-LIABILITY-AND-EQUITY> (132,008,000)
<SALES> 53,930,000
<TOTAL-REVENUES> 55,969,000
<CGS> (37,554,000)
<TOTAL-COSTS> (56,065,000)
<OTHER-EXPENSES> (549,000)
<LOSS-PROVISION> (257,000)
<INTEREST-EXPENSE> (1,081,000)
<INCOME-PRETAX> (1,983,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,983,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,983,000)
<EPS-PRIMARY> (0.90)
<EPS-DILUTED> (0.90)
</TABLE>
