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, 1999
COMMISSION FILE NUMBER 0-1391
ZIONS CO-OPERATIVE 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 [ ]
As of September 10, 1999, there were 2,208,816 outstanding shares of the
registrant's Common Stock, $.001 par value.
<PAGE>
Form 10-Q
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
INDEX
TITLE PAGE NO.
----- --------
Balance Sheet 1
July 31, 1999 & January 30, 1999
Statement of Income 3
Three Months Ended July 31, 1999 & August 1, 1998
Statement of Income 4
Six Months Ended July 31, 1999 & August 1, 1998
Condensed Statement of Cash Flows 5
Six Months Ended July 31, 1999 and August 1, 1998
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Other Information 13
Signatures 14
<PAGE>
Form 10-Q
Item 1. Financial Statements
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
<TABLE>
<CAPTION>
BALANCE SHEET - JULY 31, 1999 & JANUARY 30, 1999
In Thousands (000 omitted)
ASSETS AND OTHER DEBITS
-----------------------
JULY JANUARY
1999 1999
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash items $ 497 $ 1,193
ST notes Receivable 300 0
Income Tax Refund Receivable 1,242 1,242
Accounts and Notes Receivable 35,170 45,173
Less allowance for doubtful accounts 1,629 1,053
Net Accounts Receivable and Notes Receivable 33,541 44,120
Inventories:
Finished goods - LIFO cost, retail method 38,038 39,793
Supplies - FIFO cost 2,862 1,850
Prepaid Expenses 958 1,019
Deferred Income Taxes 3,836 3,836
--------- ---------
Total Current Assets $ 81,274 93,053
Property:
Property, plant and equipment $ 42,336 $ 42,045
Less accumulated depreciation, depletion
and amortization of property, plant & equipment 13,993 14,673
Capital Leases, Net Accumulated Amortization
(Note 1) 8,540 9,256
--------- ---------
Total Property - Net $ 36,883 $ 36,628
Other Assets and Deferred Charges:
Other Assets 322 322
Investment in Subsidiary 304 304
Deferred Tax Asset 2,107 2,107
--------- ---------
TOTAL ASSETS AND OTHER DEBITS $ 120,890 $ 132,414
--------- ---------
See Notes to condensed financial statements
</TABLE>
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<PAGE>
Form 10-Q
<TABLE>
<CAPTION>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
BALANCE SHEET - JULY 31, 1999 & JANUARY 30, 1999 - continued
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
---------------------------------------------
JULY JANUARY
1999 1999
--------- ---------
<S> <C> <C>
Current Liabilities:
Accounts payable - trade $ 3,642 $ 7,407
Short term borrowings - banks 49,007 0
Current portion of long-term debt 218 408
Current portion of obligations under capital
leases 1,376 1,506
Accrued liabilities
Outstanding gift certificates 1,924 1,965
Other accrued liabilities 11,610 14,489
Deferred gain on sale and leaseback 1,846 1,757
--------- ---------
Total Current Liabilities $ 69,623 $ 27,532
Long-Term Debt:
Bonds, mortgages and similar debt 668 48,512
Capital Lease - Long Term Portion (Note 1) 14,142 14,780
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes 0 0
Deferred Gross Profit 3,047 2,081
Stockholders Equity:
Capital shares $ 14,972 $ 14,867
Pension Liability Adjustment (3,399) (3,399)
Other stockholders equity 21,837 28,041
--------- ---------
Total Stockholders Equity $ 33,410 $ 39,509
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 120,890 $ 132,414
See notes to condensed financial statements
</TABLE>
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<PAGE>
Form 10-Q
<TABLE>
<CAPTION>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED JULY 31,1999 & AUGUST 1,1998
In Thousands (000 omitted)
1999 1998
--------- ---------
<S> <C> <C>
Net Sales $ 47,900 $ 51,391
Cost of goods sold, direct merchandising and
buying costs 32,919 36,268
Other revenues 1,134 1,339
Other costs and expenses applicable to other revenue 0 0
Selling, general and administrative expenses 17,786 18,147
Provision for doubtful accounts and notes 235 254
Other Income:
Miscellaneous other income 650 191
Income Deductions:
Interest and amortization of debt discount and
expenses 725 694
Interest Expense on Capital Leases (Note 1) 362 404
Miscellaneous income deductions 290 398
--------- ---------
Net loss before income tax expense and
extraordinary items $ (2,633) $ (3,244)
Income tax expense 0 0
--------- ---------
Net loss before extraordinary items $ (2,633) $ (3,244)
Extraordinary items less applicable tax 0 0
--------- ---------
Net Loss $ (2,633) $ (3,244)
========= =========
Weighted average number of common shares outstanding 2,208,816 2,200,445
Earnings per common share $ (1.20) $ (1.47)
Cash dividends per common share $ 0.00 $ 0.16
See notes to condensed financial statements
</TABLE>
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<PAGE>
Form 10-Q
<TABLE>
<CAPTION>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JULY 31,1999 & AUGUST 1,1998
In Thousands (000 omitted)
1999 1998
--------- ---------
<S> <C> <C>
Net Sales $ 96,536 $ 105,321
Cost of goods sold, direct merchandising and
buying costs 66,719 73,822
Other revenues 2,483 2,891
Other costs and expenses applicable to other revenue 0 0
Selling, general and administrative expenses 35,409 36,658
Provision for doubtful accounts and notes 487 511
Other Income:
Miscellaneous other income 1,086 678
Income Deductions:
Interest and amortization of debt discount
and expenses 1,582 1,373
Interest Expense on Capital Leases (Note 1) 723 806
Miscellaneous income deductions 1,389 947
--------- ---------
Net loss before income tax expense and
extraordinary items (6,204) (5,227)
Income tax expense 0 0
--------- ---------
Net loss before extraordinary items (6,204) (5,227)
Extraordinary items less applicable tax 0 0
--------- ---------
Net loss $ (6,204) $ (5.227)
========= =========
Weighted average number of common shares outstanding 2,208,816 2,200,445
Earnings per common share $ (2.81) $ (2.38)
Cash dividends per common share $ 0.00 $ 0.16
See notes to condensed financial statements
</TABLE>
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<PAGE>
Form 10-Q
<TABLE>
<CAPTION>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31,1999 & AUGUST 1,1998
In Thousands (000 omitted)
July July
1999 1998
--------- ---------
<S> <C> <C>
Net Income (loss) $ (6,204) $ (5,227)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,179 2,192
Deferred gross profit (791) (2,786)
Deferred income taxes 0 0
Provision for losses on accounts receivable 487 511
Decrease (increase) in assets:
Accounts receivable 9,793 11,372
Inventories (742) (1,351)
Prepaid expenses 61 13
Other Assets 0 0
Increase (decrease) in liabilities:
Accounts payable -- trade (1,388) (625)
Accrued liabilities (1,076) 113
--------- ---------
Net cash provided by operating activities 3,801 4,214
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,584) (3,849)
Proceeds from sale of property, plant and equipment 2,151 4,136
--------- ---------
Net cash used in investing activities (2,434) 287
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 46,631 0
Additions (reductions) to long-term debt (47,843) (3,750)
Principal payments on long-term debt & obligations
under capital leases (956) (825)
Stock options exercised and sales of capital stock
(Purchase) Sale of treasury stock 105 52
Cash dividends 0 (704)
Long Term Investments 0 300
Long Term Note Receivable 0 (520)
--------- ---------
Net cash provided by (used in) financing activities (2,064) (5,447)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (696) (946)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,193 1,619
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 497 $ 673
========= =========
</TABLE>
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<PAGE>
ZIONS CO-OPERATIVE 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 July 31, 1999 and January 30, 1999 and the results of operations for the
three months ended July 31, 1999 and August 1, 1998, for six months ended
July 31, 1999 and August 1, 1998 and cash flows for three the six months
ended July 31, 1999 and August 1, 1998.
3. The results of operations for the three months ended July 31,1999 and the
six months ended July 31,1999 are not necessarily indicative of the results
to be expected for the full year.
-6-
<PAGE>
Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The purpose of this section is to discuss and analyze the financial
condition, liquidity and capital resources and results of operations of Zions
Co-operative Mercantile Institution (the "Company" or "ZCMI"). This analysis
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended January 30, 1999 (the "1998 10-K").
Overview
The reconstruction of the major interstate highway ("I-15") in the Salt
Lake Valley continued to have an adverse effect on the Company's operations
during the six months ended July 31, 1999. The Company believes the I-15
construction has accelerated the movement of customers to competing stores
located away from the highway construction. In particular the I-15 construction
has resulted in slower than anticipated sales at the Company's South Towne store
in Sandy, Utah. The I-15 construction is expected to be completed in 2001.
Construction of an addition to the Company's University Mall store in Orem,
Utah also continued for most of the six month period ended July 31, 1999. This
construction, which began in the fall of 1998, was required pursuant to the
terms of an agreement among the Company, the developer of the mall and local
government. The construction project was completed in June 1999. Prior to the
construction project, the University Mall store was the Company's most
profitable store. The construction project, however, adversely affected the
profitability of the University Mall store during the six months ended July 31,
1999. Sales at the University Mall store were also adversely affected by the
development of two competing shopping malls.
The University Mall building was sold by the Company and leased back in a
transaction with Woodbury Corporation, the developer and owner of the University
Mall. The purchase price of the building was $7.1 million. The profit on the
sale was approximately $1.9 million and is being amortized over the life of the
lease, which is 20 years. The lease included a provision of no lease payments
through the first five years of the lease or until the store has annual sales of
$42,500,000 and the provision for a payment of $75,000 per year until a major
department store already committed opens in the mall. This payment is due during
the fiscal year and will be recognized as income at the time of payment. A
separate agreement related to incentives from Orem City stipulates the payment
of approximately $20,000 per month until the major department store opening or
ZCMI accumulates over $30 million in sales in the University Mall store. This
payment is due each month and is recognized as income as the payment is received
from Orem City. The lease also included a provision for payment of $2 million in
August, 2001 from Woodbury Corporation for expansion in the building. This
provision is accounted for by recognizing a receivable for each month in the
lease and a corresponding reduction of the lease payment.
The Company, like many other retailers, records a high percentage of its
annual sales in the fourth quarter due to the seasonal buying patterns of
consumers. The Company typically records approximately 33% of its annual sales
in the fourth quarter compared to approximately 20% in the second quarter.
Variations in net income can be even greater due to fixed expenses that accrue
rather evenly throughout the year. As a result, many retailers incur net losses
for the second quarter.
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Form 10-Q
Liquidity and Capital Resources
The Company's primary sources of liquidity are funds provided by
operations, the leasing of buildings and fixtures owned by the Company, and bank
borrowings.
Credit Facility
The Company has entered into a Loan Agreement (the "Loan Agreement"), dated
April 15, 1999, with First Security Bank, N.A. ("FSB"), Zions First National
Bank ("ZFNB") and certain other financial institutions party thereto. The Loan
Agreement provides for a $53 million credit facility, which includes a $5
million revolving loan facility and a $5 million letter of credit facility.
Borrowings under the Loan Agreement are secured by all of the Company's
inventory and accounts. At July 31, 1999, approximately $46.3 million was
outstanding under the Loan Agreement.
The Loan Agreement consolidated the Company's prior credit facilities and
modified certain terms of those facilities. The Loan Agreement terminates
November 1, 2000.
Loans under the Loan Agreement bear interest, at the election of the
Company, at either (i) the Prime Rate (as defined in the Loan Agreement) plus a
percentage ranging from .20% to .95%, depending on the Company's cumulative net
profit before taxes or (ii) the London Interbank Offered Rate plus 2% to 3.25%,
also depending on the Company's cumulative net profit before taxes.
The Loan Agreement contains certain financial covenants of the Company.
These covenants require the Company to (i) maintain working capital of at least
$14 million through July 30, 1999, and $20 million thereafter, (ii) maintain
tangible net worth of at least $34.8 million for the quarter ended July 31, 1999
and a specified amount ranging from $34 million to $38 million for each quarter
thereafter through the quarter ending October 31, 2000, at which time tangible
net worth must be at least $35.9 million, and (iii) not incur cumulative net
losses before taxes greater than the following amounts for each of the quarters
on an on-going basis:
Quarter Ending Amount of Loss
-------------- --------------
July 31 $ 4.5 million
October 31 $ 5.3 million
January 31 $ 1.5 million
April 30 $ 2.8 million
For purposes of the Loan Agreement, working capital is defined as current
assets less current liabilities and the outstanding principal balance under the
Loan Agreement, whether classified as long-term liabilities or short-term
liabilities. As previously reported, the Company was not in compliance with the
working capital covenant based upon the Company's balance sheet at April 30,
1999. Based upon the Company's balance sheet at July 31, 1999, the Company was
not in compliance with the three financial covenants contained in the Loan
Agreement. Specifically, at July 31, 1999, the Company's working capital was
approximately $11.7 million, the Company's tangible net worth was approximately
$33.4 million, and the Company's cumulative loss before taxes for the quarter
ended July 31, 1999 was approximately $6.2 million.
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Form 10-Q
On September 13, 1999, the Company requested and received a waiver letter
(the "Waiver Letter") from FSB and ZFNB, as agents for the financial
institutions party to the Loan Agreement (collectively, the "Lenders"). Pursuant
to the Waiver Letter, the Lenders have waived the Company's noncompliance with
the financial covenants through October 31, 1999.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $3.8 million for the six
months ended July 31, 1999, a decrease of $0.4 million from the corresponding
period of 1998. The decrease was due primarily to a higher net loss for the 1999
period.
Net Cash Used in Investing Activities
Net cash used in investing activities was $2.4 million for the six months
ended July 31, 1999, compared to net cash provided by investing activities of
$0.3 million for the corresponding period of 1998. The net cash used in
investing activities for the 1999 period reflects increased investments in
property, plant and equipment relating primarily to the University Mall store
construction. The Company currently estimates capital expenditures of $750,000
for the remainder of the current fiscal year, consisting of normal equipment and
fixture replacement.
Net Cash Used in Financing Activities
Net cash used in financing activities was $2.1 million for the six months
ended July 31, 1999, a decrease of decrease of $3.4 million from the
corresponding period of 1998. The decrease reflects a reduction in borrowings
for the 1999 period.
Liquidity
As of July 31, 1999, the Company had $11.7 million of working capital and
approximately $6.7 million available for borrowing under the Loan Agreement,
approximately $4 million of which was issued as letters of credit. As of July
31, 1999, the debt under the Loan Agreement bore interest at a weighted average
rate of 7.75%.
The Company's quick and current ratios were 0.5 and 1.2, respectively, at
July 31, 1999 compared to 1.7 and 4.1 at August 1, 1998. Accordingly, the
Company's liquidity has been substantially reduced. The decrease in these ratios
is due in part to the reclassifying of borrowings under the Loan Agreement from
long-term to short-term as a result of the Company's noncompliance with the
financial covenants under the Loan Agreement. Subsequent to the end of the
second quarter, the Lenders waived the Company's noncompliance with the
financial covenants through October 31, 1999.
The timing of cash flows during the holiday shopping season, particularly
in November, can have a significant impact on the Company's liquidity. While the
Company believes that cash flows from operations and available borrowings under
the Loan Agreement should be sufficient to finance current operations and
provide for planned capital expenditures, the Company may require additional
financing depending upon the timing of cash flows during the holiday shopping
season. The Company expects to enter into an additional credit facility with one
or more of the Lenders participating in the Loan Agreement in order to provide
such financing. The Company believes that this additional credit facility will
provide the Company with sufficient liquidity through the end of 1999.
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<PAGE>
Form 10-Q
The Company's liquidity is also dependent on continued favorable
relationships with vendors. The Company continues to pay, and receive
merchandise from, its major vendors in a manner consistent with past practices.
Any change in the relationships between the Company and its vendors relating to
prices, delivery or payment terms could have a material adverse effect on the
Company's liquidity and results of operations.
If the Company is unable to regain compliance with the financial covenants
contained in the Loan Agreement by October 31, 1999, the Company could
potentially be in default under the Loan Agreement. Any default under the Loan
Agreement could have a material adverse effect on the Company's liquidity and
results of operations. In the event the Company is unable to regain compliance
with the financial covenants, it intends to implement alternative financing
arrangements.
Results of Operations
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items in the Company's condensed income
statements.
<TABLE>
<CAPTION>
PERCENT OF NET SALES
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Other Income, net 2.4 2.6 2.6 2.7
------- ------- ------- -------
102.4 102.6 102.6 102.7
Costs and expenses:
Costs & merchandise sold 68.7 70.6 69.1 70.1
Selling, general & admin. 37.1 35.3 36.8 34.8
Income (loss) from oper. (3.4) (3.3) (3.3) (2.2)
Interest expense, net (2.1) (3.0) (3.1) (2.8)
------- ------- ------- -------
Net loss (5.5) (6.3) (6.4) (5.0)
======= ======= ======= =======
</TABLE>
Net sales decreased by 6.8% for the second quarter of 1999 compared to the
first quarter of fiscal 1998. Net sales decreased by 8.3% for the six months
ended July 31, 1999 compared to the first half of fiscal 1998. The decrease for
the three and six month periods was due primarily to the impact of the I-15
construction and construction at the Company's University Mall store.
As a percentage of sales, cost of goods sold decreased to 68.72% for the
three months ended July 31, 1999 compared to 70.57% for the second quarter of
fiscal 1998. Cost of goods sold decreased to 69.1% of net sales for the six
months ended July 31, 1999 compared to 70.1% for the second quarter of fiscal
1998. The decrease in cost of goods
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<PAGE>
Form 10-Q
sold for the three and six month periods primarily reflects decreases in
markdowns for these periods. Markdowns decreased to 16.0% of net sales for the
three months ended July 31, 1999 and 17.8% of net sales for the six months ended
July 31, 1999, compared to 19.1% and 21.3% for the three and six month periods
ended August 1, 1998, respectively. The decrease in markdowns was primarily the
result of a decrease in inventory and better buying controls.
Selling, general and administrative expenses, as a percentage of net sales,
increased to 37.13% for the three months ended July 31, 1999 compared to 35.31%
of net sales for the second quarter of fiscal 1998. Selling, general and
administrative expenses increased to 40% of net sales for the six months ended
July 31, 1999 compared to 38% for the first half of fiscal 1998. Although
selling, general and administrative expenses were lower for both periods
compared to 1998, selling, general and administrative expenses increased
substantially as a percentage of net sales due to lower sales levels.
Depreciation and equipment leasing expenses increased to 3.1% of net sales
for the three months ended July 31, 1999 compared to 2.8% of net sales for the
second quarter of fiscal 1998. For the six months ended July 31, 1999,
depreciation and equipment leasing expenses increased to 3.1% of net sales
compared to 2.7% of net sales for the second quarter of 1998. The increase for
the three and six month periods was primarily the result of the expansion and
remodeling of the Company's Layton Hills store and the Company's University Mall
store.
During the first half of fiscal 1999, separation and release agreements
were offered to certain employees of the Company at the stores and the Company's
service center. Expenses associated with these agreements were partially offset
by lower pension expenses and reductions of corporate promotional discounts.
Interest income decreased for the three and six month periods ended July
31, 1999 as a result of decreased accounts receivable. The decrease in accounts
receivable is due largely to reduced sales volumes.
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 and 1998, 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. At the present time, all major systems are
substantially completed. 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. Contingency plans are in
place for critical systems and are not anticipated to be needed.
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<PAGE>
Form 10-Q
"Safe Harbor" Statement for Forward Looking Statements
Certain information included in this report contains forward-looking
statements. When used in this report, the words "estimates," "expects,"
"anticipates," "forecasts," "plans," "intends," "believes" and variations of
such words or similar expressions are intended to identify forward-looking
statements. There are a number of risks and uncertainties that could cause our
actual results to differ materially from the forward-looking statements
contained in or contemplated by this report. These risks include, but are not
limited to, uncertainties affecting the retail industry in general, such as
consumer confidence and demand for soft goods; risks relating to the substantial
leverage of the Company and the ability of the Company to service its
indebtedness and comply with the covenants under its credit facility;
competition within primary markets in which the Company's stores are located;
the need for, and costs associated with, store renovations and other capital
expenditures; and customer and vendor relationships. There may also be other
factors, including those discussed elsewhere in this report, that may cause our
actual results to differ materially from the forward-looking statements. Any
forward-looking statements should be considered in light of these factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various interest rate and price risks that arise
in the normal course of business. The company finances its operations with
borrowings comprised primarily of variable rate indebtedness. Significant
increases in interest rates or wholesale prices could adversely affect the
Company's operating margins, the ability of the Company to service its
indebtedness, and the ability of the Company to comply with the financial
covenants contained in the Loan Agreement.
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<PAGE>
Form 10-Q
ZIONS CO-OPERATIVE 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 3. Defaults Upon Senior Securities.
Based upon the Company's balance sheet at July 31, 1999, the Company
was not in compliance with the three financial covenants contained in
its Loan Agreement. The Company's noncompliance with these financial
covenants constitutes an event of default under the Loan Agreement.
Pursuant to a Waiver Letter, the Lenders under the Loan Agreement have
waived the Company's noncompliance with the financial covenants
through October 31, 1999. The Loan Agreement, the Waiver Letter and
the financial covenants are described above under "Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources-Credit Facility"
and such discussion is hereby incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
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<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 September 14, 1999 KEITH C. SAUNDERS
-----------------------------------------
Keith C. Saunders
Executive Vice President-CFO
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements contained in the body of the accompanying Form 10-Q and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-2000
<PERIOD-END> JUL-31-1999
<CASH> 497
<SECURITIES> 0
<RECEIVABLES> 36,712
<ALLOWANCES> (1,629)
<INVENTORY> 40,900
<CURRENT-ASSETS> 81,274
<PP&E> 66,066
<DEPRECIATION> (29,183)
<TOTAL-ASSETS> 120,890
<CURRENT-LIABILITIES> 69,623
<BONDS> 0
0
0
<COMMON> 2,160
<OTHER-SE> 33,408
<TOTAL-LIABILITY-AND-EQUITY> 120,890
<SALES> 96,536
<TOTAL-REVENUES> 99,019
<CGS> (66,719)
<TOTAL-COSTS> (102,128)
<OTHER-EXPENSES> (1,389)
<LOSS-PROVISION> (487)
<INTEREST-EXPENSE> (2,305)
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