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 October 30, 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 preceding 12 months (or of such shorter 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 November 26, 1999, there were 2,244,441 outstanding shares of the
registrant's Common Stock, $.001 par value.
Form 10-Q
ZIONS COOPERATIVE MERCANTILE INSTITUTION
INDEX
TITLE PAGE NO.
Condensed Balance Sheet 1
Condensed Income Statement 3
Three Months Ended Oct 30, 1999 & Oct 31, 1998
Condensed Income Statement 4
Nine Months Ended Oct 30, 1999 & Oct 31, 1998
Statements of Cash Flows 5
Nine Months Ended Oct 30, 1999 & Oct 31, 1998
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Other Information 13
Signatures 14
<PAGE>
Form 10-Q
<TABLE>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - OCTOBER 30, 1999 & JANUARY 30, 1999
In Thousands (000 omitted)
ASSETS AND OTHER DEBITS
Current Assets: OCTOBER JANUARY
1999 1999
<S> <C> <C>
Cash and short term investments $ 501 $ 1,193
ST Notes Receivable 300 0
Income Tax Refund Receivable 410 1,242
Accounts and Notes Receivable 36,401 45,173
Less allowance for doubtful accounts 1,941 1,053
Net Accounts Receivable and
Notes Receivable 34,460 44,120
Inventories:
Finished goods
- LIFO cost, retail method 43,133 39,793
Supplies - FIFO cost 2,687 1,850
Prepaid Expenses 486 1,019
Deferred Income Taxes 3,836 3,836
Total Current Assets $ 85,813 $ 93,053
Property:
Property, plant and equipment $ 43,147 $ 42,045
Less accumulated depreciation, depletion
and amortization of property, plant and
equipment 14,868 14,673
Capital Leases, Net Accumulated Amortization
(Note 1) 8,182 9,256
Total Property $ 36,461 $ 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 $125,007 $132,414
</TABLE>
See notes to financial statements
-1-
Form 10-Q
<TABLE>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
CONDENSED BALANCE SHEET - OCTOBER 30, 1999 & JANUARY 30, 1999
In Thousands (000 omitted)
LIABILITIES, RESERVES AND STOCKHOLDERS EQUITY
OCTOBER JANUARY
1999 1999
Current Liabilities:
<S> <C> <C>
Accounts payable - trade $ 5,922 $ 7,407
Short term borrowings - banks 54,371 0
Current portion of long-term debt 223 408
Current portion of obligations under
capital leases 1,312 1,506
Accrued liabilities
Outstanding gift certificates 1,818 1,965
Other accrued liabilities 13,486 14,489
Deferred gain on sale and leaseback 1,846 1,757
Total Current Liabilities $ 78,978 $ 27,532
Long-Term Debt:
Bonds, mortgages and similar debt 611 48,512
Capital Lease - Long Term Portion (Note 1) 13,824 14,780
Other Liabilities and Deferred Credits:
Deferred Fed Income Taxes 0 0
Deferred Gross Profit 2,584 2,081
Stockholders Equity:
Capital shares $ 14,977 $ 14,867
Pension Liability Adjustment (3,399) (3,399)
Other Stockholders Equity 17,432 28,041
Total Stockholders Equity $ 29,010 $ 39,509
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $125,007 $132,414
</TABLE>
See notes to financial statements
-2-
Form 10-Q
<TABLE>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
CONDENSED INCOME STATEMENT
FOR THREE MONTHS ENDED OCTOBER 30, 1999 & OCTOBER 31, 1998
In Thousands (000 omitted)
1999 1998
<S> <C> <C>
Net Sales $ 54,026 $ 56,657
Cost of goods sold, direct merchandising and
buying costs 38,156 39,812
Other revenues 1,180 1,359
Other costs and expenses applicable to other revenue
Selling, general and administrative expenses 18,726 20,884
Provision for doubtful accounts and notes 287 356
Other Income:
Miscellaneous other income 165 463
Income Deductions:
Interest and amortization of debt discount
and expenses 1,189 698
Interest Expense on Capital Leases (Note 1) 361 404
Miscellaneous income deductions 1,057 687
Net loss before income tax expense
and extraordinary items (4,405) (4,362)
Income tax expense 0 0
Net loss before extraordinary items $ (4,405) $ (4,362)
Extraordinary items less applicable tax 0 0
Net Loss $ (4,405) $ (4,362)
Weighted average number of
common shares outstanding 2,209,159 2,204,984
Earnings per common share (basic and diluted) $ (1.99) $ (1.98)
Cash dividends per common share $ 0.00 $ 0.16
</TABLE>
See notes to financial statements
-3-
Form 10-Q
<TABLE>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
CONDENSED INCOME STATEMENT
FOR NINE MONTHS ENDED OCTOBER 30, 1999 & OCTOBER 31, 1998
In Thousands (000 omitted)
1999 1998
<S> <C> <C>
Net Sales $150,562 $161,978
Cost of goods sold, direct merchandising and
buying costs 104,875 113,634
Other revenues 3,663 4,250
Other costs and expenses applicable to other revenue
Selling, general and administrative expenses 54,135 57,542
Provision for doubtful accounts and notes 774 867
Other Income:
Miscellaneous other income 1,251 1,141
Income Deductions:
Interest and amortization of debt discount and
expenses 2,771 2,071
Interest Expense on Capital Leases (Note 1)1,084 1,210
Miscellaneous income deductions 2,446 1,634
Net loss before income tax expense
and extraordinary items $(10,609) (9,589)
Income tax expense 0 0
Net loss before extraordinary items $(10,609) $ (9,589)
Extraordinary items less applicable tax 0 0
Net Loss $(10,609) $ (9,589)
Weighted average number of
common shares outstanding 2,209,159 2,204,984
Earnings per common share (basic and diluted) ($ 4.80) ($ 4.35)
Cash dividends per common share $ 0.00 $ 0.16
</TABLE>
See notes to condensed financial statements
-4-
Form
10-Q
<TABLE>
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED OCTOBER 30, 1999 & OCTOBER 31, 1998
In Thousands (000 omitted)
OCTOBER OCTOBER
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $(10,609) $(9,590)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,413 3,345
Deferred gross profit (1,254) (3,163)
Deferred income taxes 0 0
Provision for losses on accounts receivable 774 867
Decrease (increase) in assets:
Accounts receivable 9,418 10,618
Inventories (4,178) (6,848)
Prepaid expenses 533 117
Other assets 0 0
Increase (decrease) in liabilities:
Accounts payable - trade 16 2,903
Accrued liabilities 694 1,188
Net cash provided by operating activities (1,192) (562)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (5,396) (5,906)
Proceeds from sale of property,
plant, and equipment 2,151 4,136
Net cash used in investing activities (3,245) (1,770)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 52,871 (2,700)
Additions to (from) long-term debt (47,901) 1,190
Principal payments on long-term debt &
obligations under capital leases (1,334) (1,237)
Stock options exercised and sales of capital stock
Purchase of treasury stock 0 (43)
Sale of treasury stock 109 51
Cash dividends 0 (1,056)
Long Term Investments 0 300
Long Term Note Receivable 0 (500)
Net cash provided by (used in) financing activities 3,745 1,407
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (692) (925)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,193 1,619
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 501 $ 694
</TABLE>
Form 10-Q
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 October 30, 1999 and January 30, 1999 and the results of
operations for the three months ended October 30, 1999 and October 31,
1998, for the nine months ended October 30, 1999 and October 31, 1998
and cash flow for nine months ended October 30, 1999 and October 31,
1998.
3. The results of operations for the three months ended October 30, 1999
and the nine months ended October 30, 1999 are not necessarily
indicative of the results to be expected for the full year.
Form 10-Q
ZIONS CO-OPERATIVE MERCANTILE INSTITUTION
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, as amended (the "1998 10-K").
As previously reported, ZCMI and The May Department Stores Company
("May") have entered into a definitive Agreement and Plan of Merger, dated as
of October 14, 1999 (the "Merger Agreement"). Pursuant to the Merger
Agreement, MS Acquisition, Inc., a wholly owned subsidiary of May, shall merge
(the "Merger") with and into ZCMI with ZCMI surviving the merger as a wholly
owned subsidiary of May.
The transactions contemplated by the Merger Agreement are subject to
certain conditions, and the Merger Agreement is subject to approval by ZCMI's
shareholders. A special meeting of the shareholders of ZCMI has been scheduled
for December 30, 1999 to consider and vote upon a proposal to approve the
Merger Agreement. If the Merger Agreement is approved, it is expected that the
Merger would become effective at 11:59 p.m. (mountain time) on December 31,
1999. Please refer to the proxy statement/prospectus dated December 1, 1999
for more information on the merger.
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 nine months ended October 30, 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 nine months
ended October 30, 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. This provision is accounted for by
estimating rent on a straight line basis and recognizing the component as rent
expense in the current fiscal period. The lease also included a 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
-7-
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 reduction in rent expense.
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 October 30, 1999, approximately $49.0
million was outstanding under the Loan Agreement.
The Loan Agreement consolidated the Company's prior credit facilities
and modified certain terms of those facilities. In October, 1999, the Loan
Agreement was modified as explained below to terminate on January 31, 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. As previously reported, the Company
was not in compliance with the three financial covenants contained in the Loan
Agreement based on the Company's at July 31, 1999. 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
waived the Company's noncompliance with the financial covenants to October 31,
1999.
On October 20, 1999, the Company entered into a Loan Agreement dated
October 20, 1999 (the "Interim Loan Agreement") with ZFNB and FSB. The purpose
of the Interim Loan Agreement is to provide ZCMI with additional working
capital until the proposed merger between the Company and May can be
completed. Pursuant to the Interim Loan Agreement, ZFNB and FSB have agreed
to provide the Company with a term loan of up to $10 million, to be secured
by a second priority security interest in the Company's accounts receivable
and inventory. Amounts outstanding under the Interim Loan Agreement will bear
interest at the rate of one-half percent (0.5%) above ZFNB's prime rate and
are payable on a monthly basis commencing November 1, 1999. The aggregate
principal balance outstanding under the Interim Loan Agreement, together with
accrued and unpaid interest, will be due and payable on January 31, 2000.
In connection with the execution of the Interim Loan Agreement, the
Company obtained the consent of the Lenders under the Company's existing $53
million Loan Agreement. In order to obtain the consent of the Lenders to the
Interim Loan Agreement, the Company, FSB and ZFNB have agreed that (i) the
financing under the Interim Loan Agreement will be provided on a
last-in-last-out basis, (ii) no principal will be paid to ZFNB and FSB pursuant
to the Interim Loan Agreement until all obligations under the $53 Million Loan
Agreement are fully satisfied, and (iii) neither ZFNB nor FSB will enforce any
rights or remedies available under the Interim Loan Agreement, including
foreclosure of security interests, until all obligations under the $53 Million
Loan Agreement are fully satisfied. The Lenders also agreed to waive the
Company's noncompliance with the financial covenants contained in the $53
million Loan Agreement through January 31, 2000. Outstanding borrowings under
the Interim Loan Agreement at October 30, 1999 were approximately $5 million.
Net Cash Provided by Operating Activities
Net cash used by operating activities was $1.2 million for the nine
months ended October 30, 1999, an increase of $0.6 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 $3.2 million for the nine
months ended October 30, 1999, an increase of $1.5 million from 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 $200,000 for the remainder
of the current fiscal year, consisting of normal equipment and fixture
replacement.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $3.7 million for the nine
months ended October 30, 1999, an increase of $2.3 million from the
corresponding period of 1998. The increase reflects an increase in borrowings
for the 1999 period.
Liquidity
As of October 30, 1999, the Company had $6.8 million of working capital
and approximately $9.0 million available for borrowing under the Loan
Agreement, approximately $4 million of which was issued as letters of credit.
As of October 30, 1999, the debt under the Loan Agreement bore interest at a
weighted average rate of 9.5%.
The Company's quick and current ratios were 0.5 and 1.1, respectively,
at October 30, 1999 compared to 1.3 and 3.3 at October 31, 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.
The timing of cash flows during the holiday shopping season can have a
significant impact on the Company's liquidity. 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 until the proposed merger with May can be completed.
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.
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>
PERCENT OF NET SALES
THREE MONTHS ENDED NINE MONTHS ENDED
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Other Income, net 2.2 2.4 2.4 2.6
102.2 102.4 102.4 102.6
Costs and expenses:
Costs of Merchandise Sold 70.6 70.3 69.7 70.1
Selling, general & admin. 35.2 36.9 36.5 35.5
Income (Loss) from oper. (3.6) (4.8) (3.7) (3.0)
Interest expense, net (4.5) (2.9) (3.4) (2.9)
Net Loss (8.2) (7.7) (7.1) (5.9)
</TABLE>
Net sales decreased by 4.6% for the third quarter of 1999 compared to
the third quarter of fiscal 1998. Net sales decreased by 7.0% for the nine
months ended October 30, 1999 compared to the third quarter of fiscal 1998.
The decrease for the three and nine 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 remained steady at 70.6%
for the three months ended October 31, 1999 compared to the same quarter of
fiscal 1998. Cost of goods sold decreased to 69.7% of net sales for the nine
months ended October 30, 1999 compared to 70.1% for the third quarter of
fiscal 1998. The decrease in cost of goods sold for the three and nine month
periods primarily reflects decreases in markdowns for these periods. 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, decreased to 35.2% for the three months ended October 30, 1999 compared
to 35.3% of net sales for the third quarter of fiscal 1998. Selling, general
and administrative expenses increased to 36.5% of net sales for the nine
months ended October 30, 1999 compared to 34.8% for the same period
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.
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.
During the third quarter of fiscal 1999, the Company incurred costs
associated with the proposed merger of approximately $665,000 which included
fees for investment bankers and attorneys fees.
Interest income decreased for the three and nine month periods ended
October 30, 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. 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, have been completed. The
costs of these conversions were expensed during the normal course of business
and were not material. Contingency plans are in place for critical systems
and are not anticipated to be needed.
"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.
-11-
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.
-12-
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 October 30, 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. The Lenders under
the Loan Agreement have waived the Company's noncompliance with
the financial covenants to January 31, 2000. The Loan
Agreement, 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) A Current Report on Form 8-K was filed on October 27,
1999 to report the merger agreement and the interim loan
agreement. A Current Report on Form 8-K was filed on
December 2, 1999 to report a change in control in
connection with the merger.
-13-
Form 10-Q
SIGNATURES
Pursuant to the requirements 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:December 14, 1999 Keith C. Saunders
Keith C. Saunders,
Executive Vice
President - CFO
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> OCT-30-1999
<CASH> 501,000
<SECURITIES> 0
<RECEIVABLES> 36,401,000
<ALLOWANCES> 1,941,000
<INVENTORY> 45,820,000
<CURRENT-ASSETS> 85,813,000
<PP&E> 60,328,000
<DEPRECIATION> 23,867,000
<TOTAL-ASSETS> 125,007,000
<CURRENT-LIABILITIES> 78,978,000
<BONDS> 0
0
0
<COMMON> 14,977,000
<OTHER-SE> 14,033,000
<TOTAL-LIABILITY-AND-EQUITY> 125,007,000
<SALES> 150,562,000
<TOTAL-REVENUES> 154,225,000
<CGS> 104,875,000
<TOTAL-COSTS> 104,875,000
<OTHER-EXPENSES> 54,135,000
<LOSS-PROVISION> 774,000
<INTEREST-EXPENSE> 3,855,000
<INCOME-PRETAX> (10,609,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,609,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,609,000)
<EPS-BASIC> (4.80)
<EPS-DILUTED> (4.80)
</TABLE>
