SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 28, 1995
Commission File No. 0-1391
ZIONS COOPERATIVE MERCANTILE INSTITUTION
(Exact name of registrant as specified in charter)
Utah 87-0196220
(State or other jurisdiction of
(I. R. S. Employer
incorporation or organization)
Identification Number)
2200 South 900 West, Salt Lake City, Utah 84137
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code 801-579-6179
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Capital Stock - $.001 par value; outstanding at
April 14, 1995, 2,149,851 shares.
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 for 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 __
Aggregate market value at April 14, 1995 of the voting stock held by
non-affiliates of the Registrant was $21,767,241.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The Registrant's Annual Report to Stockholders for the year ended
January 28, 1995 (Part II).
(2) The Registrant's 1995 Proxy Statement (Notice of Annual Meeting of
Shareholders to be held May 24, 1995) pursuant to Regulation 14A (Parts I and
III).
PART I
ITEM 1. BUSINESS.
(a) Zions Cooperative Mercantile Institution (Registrant) was organized
as a Utah Corporation in 1868 and was the first full-line
department store in the United States. Notwithstanding the
Registrant's name, the Registrant does not operate as a
cooperative on a non-profit basis. The Registrant is in the
retail line of business: operating both full-line, conventional
department stores, men's and women's ready to wear, specialty and
outlet stores. The full-line stores are located in downtown Salt
Lake City and Ogden, Utah and in regional shopping centers in the
suburban Salt Lake City, Orem, Logan, Sandy, Layton, and St.
George, Utah areas and in Pocatello and Idaho Falls, Idaho. The
specialty and outlet stores are located in Provo, Utah; Mesa,
Arizona; and St. George, Utah. During the year ended January 31,
1993, ZCMI closed stores located in Scottsdale, Arizona and Las
Vegas, Nevada. During the year ended January 29, 1994, ZCMI closed
its store located in Phoenix, Arizona. During the year ended
January 28, 1995, ZCMI closed its Superstition Springs store
located in Mesa, Arizona. The Registrant is one of the major
tenants with full-line stores in six suburban regional shopping
centers in Utah.
(b) Not applicable as Registrant operates one line of business as
previously described.
(c) (1) (i) No department or class accounted for 10% or more of
revenue in any of the last three fiscal years.
(ii) through (iv) Not applicable
(v) The business of the Registrant follows the seasonal
pattern of full-line department stores.
(vi) The Registrant offers to sell on the basis of cash, bank
credit card, option charge account, third party credit
cards, or layaway. The option charge account is a typical
revolving charge account with finance charges assessed on
the unpaid balance at 1-1/2% per month.
Registrant's sales made on credit vary by store but range
from approximately one-third to one-half of sales at each
department store location.
(vii) through (ix) Not applicable
(x) Substantial competition is found in all store locations
from other full-line, conventional department stores, chain
department stores, discount stores, and specialty stores.
(xi) and (xii) Not applicable
(xiii) At year end the Registrant had 2,602 employees
(full-time equivalent), an increase of two from the prior
year.
(d) The Registrant has no operations in any foreign country, nor does
the Registrant have any sales nor obtain revenue from any foreign
country. The Registrant's operations are limited to the States of
Utah, Arizona, and Idaho.
ITEM 2. PROPERTIES.
The Registrant owns or leases eleven major retail department stores in
the States of Utah and Idaho as follows:
Downtown Salt Lake City, Utah, a store of approximately 331,000 square
feet on the same site as and part of a large downtown covered shopping
mall with parking for 2,300 cars. The move into the facility was
completed in 1976. The store was completely remodeled over a two year
period ended December 31, 1992. This building is considered adequate
for present needs. The lease on this facility, which is recorded as a
capital lease, will expire in 2016.
Suburban store in Cottonwood Mall, 4835 Highland Drive, Salt Lake City,
Utah erected in 1962 containing approximately 150,000 square feet on
two levels. In 1978 a third level was added to the facility,
increasing the total space of the store to 220,000 square feet. The
first and second floors of the store were completely remodeled during
1979. The first floor was again partially remodeled and the second
floor partially remodeled, adding 30,000 square feet during the year
ended January 28, 1995. This building is considered adequate for
present needs. The operating lease expires February 1, 2012.
Downtown Ogden, Utah, is an owned, four-level, 154,000 square foot
building erected in 1967. In mid 1979, the Company added an additional
20,000 square feet. The store was completely remodeled during 1980.
This building was sold during the year ended January 28, 1995 and the
store location was moved across Washington Boulevard to the Ogden City
Mall. The mall location contained approximately 135,000 square feet on
two levels. The building is considered adequate for present needs. The
operating lease expires September 2004.
Suburban store in Valley Fair Mall, 3601 South 2700 West, Salt Lake
City, Utah is a one-level store of approximately 105,000 square feet
erected in 1970. This store is one of the main anchor tenants of the
mall. The store was partially remodeled during the year ended January
29, 1994. This building is considered adequate for present needs. The
operating lease expires September 30, 2000.
Suburban store in University Mall, 1300 South State Street, Orem, Utah
is an owned, three-level store of approximately 163,000 square feet.
Provisions have been made to enable the store to expand to 225,000
square feet on three levels when necessary. The store is one of four
major anchor stores for the mall. This building is considered adequate
for present needs.
Suburban store in Cache Valley Mall, 1400 North Main Street, Logan, Utah
is a one-level store of approximately 61,000 square feet. The store is
one of three major anchor stores of the mall. This building is
considered adequate for present needs. The operating lease expires May
1, 2001.
Suburban store in Layton Hills Mall, l400 North Hill Field Road, Layton,
Utah is a two-level store of approximately 121,000 square feet. The
store is one of three major anchor stores of the mall. This building is
considered adequate for present needs. The second floor was partially
remodeled during the year ended January 28, 1995. The operating lease
expires December 22, 2003.
Suburban store in Pine Ridge Mall, 4235 Yellowstone Avenue, Chubbuck,
Idaho is a two-level store of approximately 123,000 square feet. The
store is one of three major anchor stores of the mall. This building is
considered adequate for present needs. The operating lease expires July
28, 2006.
Suburban store in Grand Teton Mall, 2420 East 17th Street, Idaho Falls,
Idaho is a two-level store of approximately 123,000 square feet. The
store is one of three major anchor stores of the mall. This building is
considered adequate for present needs. The operating lease expires
July 31, 2009.
Suburban store in South Towne Center, 10600 South 110 West, Sandy, Utah
is a two-level store of approximately 200,000 square feet. The store is
one of three major anchor stores of the center. This building is
considered adequate for present needs. The operating lease expires
July 31, 2011.
Suburban store in Red Cliffs enclosed mall, 1720 East Red Cliff Drive,
St. George, Utah is a one level store of approximately 40,000 square
feet. The store is one of three major anchor stores for the mall. This
building is considered adequate for present needs. The operating lease
expires July 5, 2015.
The Registrant leases six retail, specialty, department stores in the
states of Utah and Arizona as follows:
Suburban specialty store in Fashion Place Mall, 6253 South State Street,
Murray, Utah is a one-level store of approximately 26,000 square feet.
This building is considered adequate for present needs. The operating
lease expires August 1, 1998.
Suburban specialty store in Foothill Village, 1420 Foothill Boulevard,
Salt Lake City, Utah is a one-level store of approximately 25,000
square feet. The building is considered adequate for present needs.
The operating lease expires August 3, 1998.
Suburban outlet store in East Bay Strip Center, 1221 University Avenue,
Provo, Utah is a one-level store of approximately 25,000 square feet.
The store is one of three major anchor stores for the mall. This
building is considered adequate for present needs. The operating lease
expires February 28, 2000.
Suburban outlet store in Tri-City enclosed mall, 1989 West Main, Mesa,
Arizona is a one-level store of approximately 25,000 square feet. The
store is one of three major anchor stores for the mall. ZCMI plans to
close this store in the year ending February 3, 1996. The operating
lease expires February 25, 2000.
Downtown specialty store in St. George, Utah, a store specializing in
home furnishings The store contains 30,000 square feet and is
considered adequate for present needs. The operating lease expires May
1, 1995.
The Registrant also leases a corporate headquarters/service center
building in Salt Lake City, Utah, for its central office functions and
for the receiving, marking, and distribution of all materials for sale
in the Company's stores. This building comprising 343,000 square fee
was completed and occupied in April 1975 and is considered adequate for
present needs. During the two years ended January 31, 1992, ZCMI
upgraded its distribution system and increased capacity approximately
34,000 square feet by adding two mezzanine floors. The lease, which is
recorded as a capital lease, expires August 1, 2015. Two additional
small warehouses are leased for storage of display and other items,
comprising approximately 12,000 square feet in total. The operating
lease expires October 31, 1998.
ITEM 3. LEGAL PROCEEDINGS.
There were no pending legal proceedings of a material nature to which
Registrant was subject at January 28, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
Cash Dividends are declared quarterly in January, April, July and
October each year.
The range of high and low bid quotations for ZCMI's capital stock is
shown below for each quarterly period during the last two years. The
stock is traded on the over-the-counter market in Salt Lake City and
is quoted in the local newspapers. The approximate numbers of
stockholders at April 14, 1995 was 1,725.
<TABLE>
Quarter Year Ended: 1995 1994
<S> <C> <C>
1 $ 9.00 - $ 9.25 $8.00 - $8.00
2 $ 9.00 - $10.25 $8.00 - $9.50
3 $10.00 - $10.25 $9.50 - $9.50
4 $ 9.75 - $ 9.88 $9.25 - $9.50
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data
(Dollars in Thousands except per share amounts)
<TABLE>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales & Other Income $244,924 $235,319 $221,830 $217,543 $205,079
Net Income 3,624 3,153 291 77 522
Total Assets 144,630 135,947 128,635 128,113 123,993
Long-Term Debt 50,974 40,368 47,214 41,584 44,527
Per Share Amounts:
Earnings 1.69 1.46 0.13 0.04 0.24
Dividends 0.60 0.60 0.60 0.60 0.60
Book Value 24.91 23.92 22.92 23.39 23.95
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
OVERVIEW OF 1994
ZCMI achieved a second consecutive year of impressive sales gains and
profitability during 1994. As shown below, overall sales increased 4.1 % for
the year ended January 28, 1995, compared to a 6.3% increase for fiscal 1993
and a 1.9% increase for fiscal 1992. Comparable store locations which were
open for the full fiscal year in the three comparable years had overall sales
increases of 4.3% for the year ended January 28, 1995 compared to 6.4% for the
year ended January 29, 1994 and 2.9% for the year ended January 31, 1993.
These increases came as a result of continuing economic stimulus in Utah
markets, and despite increasing competition in the company's market areas,
and without a strong market nationally in ready to wear clothing areas.
<TABLE>
Sales
Year ended: January 28, January 29, January 31,
1995 1994 1993
<S> <C> <C> <C>
Total sales $237,357,400 $228,006,300 $214,540,400
Comp. store sales 236,950,500 227,252,500 213,579,500
Other Income 7,566,190 7,312,600 7,289,800
Net Income 3,624,251 3,152,874 291,002
Total Sales % Inc. 4.1% 6.3% 1.9%
Comp. store sales % inc. 4.3 6.4 2.9
Other Inc. % inc. 3.5 0.3 4.3
Net Income per share $1.69 $1.46 $0.13
</TABLE>
Other income has increased by 3.5% for the year ended January 29, 1995 as
compared to 0.3% increase in the year ended January 29, 1994. Other income
is primarily interest income from customer accounts and deferred gross profit
from the sales of furniture, fixtures, and equipment. Interest income has
been growing smaller as result of continuing pressures for lower interest
rates on credit and as customers pay accounts quicker to avoid interest
charges. Other income from this source increased slightly because of the
size of the increase in credit balances from credit sales. An analysis of the
average percent of total credit balances paid and annual turnover of credit
balances is shown below. Deferred gross profit increased other income as a
result of accounting changes which changed the recognition of this income from
a credit to operating expenses during part of the fiscal year ended January
29, 1994 to recognizing all deferred gross profit in other income during the
fiscal year ended January 28, 1995. Net Income increased as a result of
items covered in the analysis of operation below.
Analysis of Credit Balances
1994 1993 1992
Average Monthly Collection Percent 21.51% 21.89% 21.39%
Annual Turnover 2.5812 2.6268 2.5668
The collection rate has increased from 21.39% in fiscal 1992 to 21.51% in
fiscal 1994 and the annual turnover has increased from 2.57 in fiscal 1992
to 2.58 in fiscal 1994. This increase has come in spite of the fact that
ZCMI extended the terms on Club Plan purchases from 12 months to 24 months
during 1993 and also offered several deferred payment promotions on certain
purchases for the first time in 1993. Both of these promotions raised
balances while either lowering or deferring the payments from normal payment
patterns.
During the year ended January 28, 1995, ZCMI closed the Superstition Springs
store in Mesa, Arizona. This store had been converted to an outlet store
format during fiscal 1992, as were the stores in the now-closed Village Fair
Mall in Phoenix, Arizona, the Tri-City Mall in Mesa, Arizona and the East Bay
Mall in Provo, Utah. As mentioned, during the year ended January 29, 1994,
ZCMI closed the Village Fair Mall store in Phoenix, Arizona. ZCMI did not
open or close any stores during the fiscal year ended January 31, 1993. No
new stores are planned during the current fiscal year.
Retailing in general continues a sluggish growth pattern in the Northeast and
West Coast as economies in those areas experience slowdowns in employment and
manufacturing. Retailers in the South, Midwest and Rockies are experiencing
better economic conditions, higher population growth rates, and resulting
sales increases. These conditions are leading to increased competition,
particularly in hard goods lines such as home furnishings, furniture, and
electronics in Utah market areas. Sales are continuing to be flat nationally
in Men's and Women's ready to wear and accessories departments both as a
result of casual office wear and retrenchment in style and pricing by vendors.
Also, decreases in the interest rate on debt financing for consumers provided
a higher than normal amount of spendable income to be used in home furnishings
purchases. This trend will slow as interest rates regain pre-1994 levels. An
increasing number of vendors struggle financially to cope with squeezing
margin rates on domestic goods as newer, better made imports make their
presence felt in the market. The market areas for ZCMI continue an outlook
for good economic conditions, particularly in the Utah markets, which are
traditionally the prime markets of the Company. 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. This
emphasis, together with superior customer service, will position ZCMI as the
dominant retailer in our markets.
ANALYSIS OF OPERATIONS
COST OF MERCHANDISE SOLD
Cost of merchandise sold includes the cost of merchandise and the related
buying cost. Cost of merchandise sold was increased slightly to 68.1% of
sales during the year ended January 28, 1995 as depicted in the chart below.
This percentage compares with 67.9% during the year ended January 29, 1994
and 67.7% during the year ended January 31, 1993.
Year ended: January 28, January 29, January 31,
1995 1994 1993
Cost of Merchandise Sold $161,672,320 $154,871,242 $145,186,900
Costs as a percent of sales 68.1% 67.9% 67.7%
The increase in cost of merchandise sold is a result of increases in purchases
costs and markdowns, and a decrease in purchase discounts These negative
increases are offset by decreased costs for shrinkage, workroom costs, and
other buying costs. . The changes in factors are noted in the table below:
<TABLE>
Cost of Merchandise Sold Factors
Year ended: January 28, January 29, January 31,
1995 1994 1993
<S> <C> <C> <C>
Cost purchases percent 55.1% 54.9% 54.0%
Markdowns (costed) 10.7 10.4 10.6
Shrinkage (costed) 0.3 0.5 1.0
Discounts on invoices (1.4) (1.5) (1.5)
Workroom Costs 1.3 1.4 1.4
Other buying costs 2.1 2.2 2.2
Total costs of merchandise sold68.1% 67.9% 67.7%
</TABLE>
Comparisons between the fiscal periods noted above are affected by several
trends. Increasing costs of purchases continues to rise from manufacturer
costs of business passed on to retailers. Markdowns has risen as an effect of
the slowdown in ready to wear, as noted above. This is offset by a
reduction of shrinkage from increased efforts in security and shrinkage
programs implemented in the past three years, including the purchase of
state-of-the-art video equipment and POS terminals. Discounts continue to
decrease as manufacturers seek quicker cash flow through other means, such as
Electronic Data Interchange (EDI) and electronic transfer of funds. Lastly,
buying costs coninue to decline as a result of the closing of the ZCMI II
buying division and more efficient merchandising programs for the buying
office use.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As shown in the chart below, selling, general and administrative expenses
increased to 30.5% as a percent to sales and other income during the year
ended January 28, 1995. This compares to 29.7% in the year ended January 29,
1994 and 30.6% in the year ended January 31, 1993. Expenses have increased as
a result of depreciation, leases, and rental of furniture, fixture and
equipment due to remodeling and expansion. These fixed asset additions are
discussed below in cash flow discussions. Also, pension and health insurance
expense have continued dramatic increases as the cost of providing fringe
benefits to associates have increased. Expenses decreased in the year ended
January 29, 1994 as a result of expense reduction efforts to control costs
related to increasing sales.
Selling, General and Administrative Expenses
<TABLE>
Year ended: January 28, January 29, January 31,
1995 1994 1993
<S> <C> <C> <C>
Selling, gen. and adm. expenses $74,782,477 $69,793,529 $67,904,462
Expenses as a percent to sales and other income
30.5% 29.7% 30.6%
Percent increase (decrease) 7.1 2.8 (2.1)
</TABLE>
Selling, general and administrative expenses in the years ended January 29,
1994 and January 31, 1993 have declined as a result of a decisive move to
close stores in the Village Fair Mall and Superstition Springs, as previously
mentioned. As part of the continuing effort to close these unprofitable
stores, $948,800 was reserved from profits in fiscal 1991 for closing costs,
while $4,600,000 was reserved from current year profits during fiscal 1992
and $1,900,000 reserved from current year profits in fiscal 1993. No
additional amounts were reserved during the year ended January 28, 1995.
These amounts are considered sufficient to close all unprofitable stores
without any further costs. In the lease termination agreements, ZCMI has
guaranteed lease payments for the Pavilions and Village Fair locations. In
addition, ZCMI is obligated for continuing substantially reduced lease
payments in the Charleston Commons location. There are no continuing
payments or guarantees from lease amendments in the Superstition Springs store
closure. These guarantees and obligations are reflected in disclosure data on
the financial statements. Operating expenses decreased during the year ended
January 31, 1993 as a result of lower payroll costs, lower rent expense in
the Cottonwood store, and lower supply costs. Bad debt expense continued to
decline in both fiscal 1993 and fiscal 1992 due to a favorable economy and
improved technology in equipment and software.
FINANCIAL CONDITION
Financial Objective
The objectives of ZCMI's financial policy are to provide the Company and its
shareholders with an improved return on investment, a solid capital structure
and a degree of financial flexibility. The Company expects that funds
required to finance expansion and refurbishment of existing stores and future
expansions will be provided by internally generated funds, the leasing of
buildings and fixtures, and by short-term and long-term debt financing.
Management has reviewed the company's position in long-term debt as thereare
indications which exist that advantages are possible in placing longer term
loans now and setting interest rates at current levels. In reviewing this
decision, it is still the position of ZCMI that, in view of existing favorable
short-term loan rates to the company, and the needed and prudent dollar level
of debt financing, short-term borrowing for working capital needs remains the
most effective method of meeting the debt financing requirements of the
company's financial objectives.
Cash Flow
Company funds generated by operations, investing and financing activities as
reported in the Statement of Cash Flows are summarized below. See also Notes
to Financial Statements for additional information regarding the Statement of
Cash Flows.
Net cash from operating activities in the year ended January 28, 1995 from
operating activities after amortization, depreciation, and other non-cash
adjustments resulted in more cash used than provided. The increase in the
liability Accounts Payable provided the major cash inflow while increases in
Accounts Receivable and Merchandise Inventories were the main areas of cash
outflow. The majority of the increase in Accounts Receivable came in the
company's Extras Plan from continued customer purchases of big ticket items
and special no-interest promotions offering extended repayment terms. Also,
purchases made on the company's Club Plan increased as a result of the
extension of repayment terms as discussed earlier. The major increase in
Merchandise Inventories came in the company's hard goods divisions.
Increased sales of home furnishings and decorative home items resulted in
increased inventories and buying plans for future sales.
Net cash from investing activities in the year ended January 28, 1995 were
used in purchases of property, plant and equipment, which were subsequently
sold and leased back to provide positive cash flows. Proceeds from the sale
of the Ogden store, as noted below, provided an inflow of cash. The categories
of capital expenditures are summarized below:
<TABLE>
Capital Expenditures
Year ended: January 28, January 29, January 31,
1995 1994 1993
<S> <C> <C> <C>
Furniture, fixtures and equipment $2,048,757 $1,832,470 $3,508,947
POS terminal replacement 3,762,079
Store remodeling and improvement 9,088,400 2,739,818
Total Capital Expenditures $11,137,157 $8,334,367 $3,508,947
Property under capital lease 1,162,097 2,492,609
Total Additions $12,299,254 $8,334,367 $6,001,556
</TABLE>
Capital expenditures during the year ended January 28, 1995 consisted of the
completion of major remodeling in the Cottonwood Mall location second floor,
which was completed in the second half of the year. Also, remodeling was
completed in the Layton Hills Mall second floor , which was completed in
October, 1994. Lastly, the Ogden store building was sold in October, 1994
at a purchase price of $3,900,000. This transaction generated a profit in the
fiscal year ended January 28, 1995 of $1,373,658. The Ogden location then
moved across Washington Boulevard in Ogden to the Ogden City Mall. Extensive
improvements to the existing location were made to accomodate the anticipated
store size and some new fixturing and equipment was required. The new Ogden
City Mall location was completed and opened in November, 1994.
Capital expenditures during the year ended January 29, 1994 consisted of major
remodeling projects in the Cottonwood and Valley Fair locations, replacement
of POS Terminals in all locations, and software and hardware purchases for
conversion of mainframe resources. POS Terminals consisting of 8 year old
to 12 year old terminals were replaced with state of the art IBM 4683
terminals to upgrade customer service, UPC scanning and to allow future price
look up capabilities. Remodeling of the first floor in Cottonwood was
completed in October 1993 and remodeling of certain areas of the Valley Fair
store were completed in November, 1993.
Capital expenditures during the year ended January 31, 1993 were the result of
furniture, fixtures and equipment purchases. Major purchases included:
telephone system replacement to allow more efficient control and use of
telephone equipment; security equipment consisting of video systems and other
systems to control shrinkage; and software purchases in anticipation of
mainframe conversion and POS system conversion.
Future estimated capital expenditures include normal equipment replacement
estimated at $500,000 and the completion of the conversion from an IBM 4381
mainframe to an IBM AS/400 computer system is estimated to cost approximately
$500,000 in total.
It is anticipated that these capital expenditures will be financed by
continuing operations and financing activities as described in financial
objectives. Lines of credit, as shown in detail in the chart below, are
considered adequate to fund the amounts necessary for capital expenditures,
dividends and other cash needs.
<TABLE>
Unsecured Lines of Credit
Year ended: January 28, January 29, January 31,
1995 1994 1993
<S> <C> <C> <C>
Used lines of credit $40,307,777 $27,000,000 $18,000,000
Unused lines of credit 8,692,223 8,000,000 20,000,000
Total $49,000,000 $35,000,000 $38,000,000
</TABLE>
Net cash from financing activities in the year ended January 28, 1995
increased as cash was provided by long-term borrowings which was offset by
payments on short-term borrowings, the pay-off of the Ogden store mortgage,
dividends, and for use by both investing and operating activities as described
As a result of the above, there was an decrease in cash and cash equivalents
during the year ended January 28, 1995.
Financial Ratios
Liquidity and capital resources can be measured by the following ratios:
<TABLE>
Ratios
Year ended: January 28, January 29, January 31,
1995 1994 1993
<S> <C> <C> <C>
Cash and short-term inv. $ 2,698,893 $ 5,315,486 $ 3,204,700
Net accounts receivable 54,678,782 52,621,267 48,961,491
Total $57,377,675 $57,936,753 $52,166,191
Total current assets 105,840,299 99,971,558 92,167,633
Total current liabilities 35,646,878 40,171,940 27,633,742
Quick ratio 1.61 1.44 1.89
Current ratio 2.97 2.49 3.34
Long term debt $52,909,621 $42,215,263 $49,092,087
Stockholders equity 53,570,680 51,092,767 49,435,594
Total capitalization $106,480,301 $93,308,030 $98,527,681
Debt to Equity Ratio 98.8% 82.6% 99.3%
Debt to Capitalization Ratio 49.7% 45.2% 49.8%
Return on Equity 6.8% 6.2% 0.6%
</TABLE>
As indicated in the ratio comparisons, the quick ratio of 1.61 times for the
year ended January 28, 1995 has increased from 1.44 times in the year ended
January 29, 1994, mostly on the strength of increased accounts receivable
balances and the decrease of short term borrowing. Accounts Receivable
balances have increased as a result of special promotions of hard goods
which offered exceptional terms. Short term borrowing decreased as a shift
to long term borrowing. The current ratio of 2.97 times for the year ended
January 28, 1995 has increased from 2.49 times for the year ended January 29,
1994. Current assets have increased both from the accounts receivable
increase and an increase in inventories. Accounts receivable increased as
previously noted, while inventories have increased as noted above in the
discussion on cash flow changes. The return of equity of 6.8% for the year
ended January 28, 1995 increased from 6.2% for the year ended January 29,
1994 for reasons previously discussed.
Inflation and Pension Effect
Inflation has been in an acceptable range for the past three years and has
not had a significant effect on ZCMI's sales growth. The Bureau of Labor
Statistics Index decrease for the year ended January 28, 1995 was (0.5)%,
compared to an increase of 1.3% in the year ended January 29, 1994 and an
increase of 0.6% in the year ended January 31, 1993. However, since ZCMI
uses the LIFO method for valuing inventories, the increase does have an
effect on the cost of merchandise sold. The LIFO credit to cost of
merchandise sold for the year ended January 28, 1995 was $804,951, compared
to a charge to cost of merchandise sold of $451,855 in the year ended
January 29, 1994 and a credit to cost of merchandise sold of $216,900
during the year ended January 31, 1993.
As noted in the financial statements, actuarial estimates utilizing the
discount rate of 9% were used in computing the pension expense for the year
ended January 29, 1994. If the actuarial estimate had used a discount rate
of 8%, pension expense would increase by approximately $230,000. Actuaries
expect that the discount rate for ZCMI would be higher than most because a)
the ZCMI plan is a career-average plan rather than a final-pay plan; and b)
over half of the ZCMI liabilities comes from retired participants. This
results in ZCMI liabilities in the plan being much shorter in duration than
the average plan, justifying the higher discount rate.
Anticipated Effect of Pronouncements
Statement of Financial Accounting Standards No. 106, "Employers Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106) was issued in Dec.,
1990. SFAS No. 106 requires that postretirement benefits other than pensions
(i.e., health care benefits) be accrued for in anticipation of an employee's
retirement. The cost of these benefits is currently expensed on a
pay-as-you-go basis. ZCMI's benefit program does not currently provide
postretirement benefits other than pensions except as required by the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). SFAS 106 is
required to be applied for fiscal years beginning after December 15, 1992.
As noted in the notes to the financial statements, ZCMI adopted SFAS 106 in
the fiscal period ended January 31, 1994. The effects of the Statement on
ZCMI were immaterial.
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS 109) was issued in February, 1992. SFAS 109 requires an asset
and liability approach for financial accounting and reporting for income
taxes which differs from the method previously required for by generally
accepted accounting principles. SFAS 109 is required to be applied for
fiscal years beginning after December 15, 1992, although earlier adoption is
allowed. In the year adopted, the Statement permits either the restatement
of prior period financial statements or the presentation of the effects of
the Statement in a manner similar to the cumulative effect of a change of
accounting principle. As noted in the notes to the financial statements,
ZCMI adopted SFAS 109 in the fiscal period ended January 31, 1993. The
effects of the Statement on ZCMI were immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information for response to the financial statements portion of this
item is contained in the Exhibit 13 attached to this Form 10-K. Selected
quarterly financial data required by this item is not furnished because
ZCMI's capital stock is not quoted on the National Association of
Securities Dealers Automated Quotation System.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change of accountants during the twenty-four months
prior to January 28, 1995. Therefore, no response to this item is
necessary.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information for response to this item is contained in the 1995 Proxy
Statement incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information for response to this item is contained in the 1995 Proxy
Statement incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information for response to this item is contained in the 1995 Proxy
Statement incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information for response to this item is contained in the 1995 Proxy
Statement incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements: Page
Independent Auditors' Report *
Balance Sheets as of January 28, 1995 and January 29, 1994 *
Statements of Income for the Years Ended January 28, 1995,
January 29, 1994, and January 31, 1993 *
Statements of Stockholders' Equity for the Years Ended
January 28, 1995, January 29, 1994, and January 31, 1993 *
Statements of Cash Flows for the Years Ended
January 28, 1995, January 29, 1994, and January 31, 1993 *
Notes to Financial Statements *
2. Financial Statement Schedule:
Independent Auditors' Report 9
Financial Statement Schedule for the Years Ended
January 28, 1995, January 29, 1994, and January 31, 1993 -
Schedule II - Valuation Accounts 10
Schedules other than those listed above are omitted because of the absence of
conditions under which they are required or because the information is shown
in the financial statements.
* Refer to Annual Report to Stockholders for the year ended January 28,
1995, incorporated herein by reference.
3. Exhibits
Exhibit
No.
(3) Articles of incorporation and by-lawsPreviously filed
(4) Instruments defining the rights of security
holders, including indentures Previously filed
(9) Voting Trust Agreements None
(10) Material contracts Previously filed
(11) Statement regarding computation of Refer to Annual Report to
Stockholders
per share earnings for the year ended January 28,
1995
incorporated herein by reference
(12) Statements regarding computation of ratios Not applicable
(13) Annual report to stockholders Incorporated here in by reference
(18) Letter regarding change in accounting principles Not applicable
(19) Previously unfiled documents None
(22) Subsidiaries of ZCMI None
(23) Published report regarding matters
submitted to vote of stockholders None
(25) Power of attorney None
(29) Information from reports furnished to state
insurance regulatory authorities None
(b) Reports on Form 8-K None
(c) Refer to (a) (3) above
(d) Separate financial statements - not applicable
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Zions Cooperative Mercantile Institution:
We have audited the financial statements of Zions Cooperative Mercantile
Institution (ZCMI) as of January 28, 1995 and January 29, 1994, and for each
of the three years in the period ended January 28, 1995, and have issued our
report thereon dated April 14, 1995; such financial statements and report are
included in your 1994 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the financial statement schedule
of ZCMI, listed in Item 14. This financial statement schedule is the
responsibility of ZCMI's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Salt Lake City, Utah
April 14, 1995 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant) ZIONS COOPERATIVE MERCANTILE INSTITUTION
By (Signature and Title)KEITH C. SAUNDERS EXECUTIVE V.P. - CFO
Date April 14, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
(Signature and Title) Richard H. Madsen
President and Director
(Date) April 14, 1995
(Signature and Title) Keith C. Saunders
Executive V.P., CFO, and Director
(Date) April 14, 1995
(Signature and Title) R. Barry Arnold
Vice President and Director
(Date) April 14, 1995
(Signature and Title) L. Tom Perry
Chairman of the Board, Director
(Date) April 14, 1995
(Signature and Title) Patricia Madsen
Director
(Date) April 14, 1995
(Signature and Title) S. F. Eccles
Director
(Date) April 14, 1995
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
No. 33-1272 of Zions Cooperative Mercantile Institution on Form S-8 of our
reports dated April 14, 1995, appearing in and incorporated by reference in
the Annual Report on Form 10-K of Zions Cooperative Mercantile Institution
for the year ended January 28, 1995.
Salt Lake City, Utah
April 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 2,698,893
<SECURITIES> 0
<RECEIVABLES> 56,602,192
<ALLOWANCES> 1,923,410
<INVENTORY> 46,411,994
<CURRENT-ASSETS> 105,840,299
<PP&E> 65,793,805
<DEPRECIATION> 27,602,084
<TOTAL-ASSETS> 144,629,919
<CURRENT-LIABILITIES> 35,646,878
<BONDS> 30,222,221
<COMMON> 14,620,629
0
0
<OTHER-SE> 38,950,051
<TOTAL-LIABILITY-AND-EQUITY> 144,629,919
<SALES> 237,357,400
<TOTAL-REVENUES> 244,923,590
<CGS> 161,672,320
<TOTAL-COSTS> 236,454,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,099,970
<INTEREST-EXPENSE> 4,175,223
<INCOME-PRETAX> 5,667,228
<INCOME-TAX> 2,042,977
<INCOME-CONTINUING> 5,667,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,624,251
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
</TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
Financial Statements as of January 28, 1995 and
January 29, 1994 and for Each of the Three Years
in the Period Ended January 28, 1995 and
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Zions Cooperative Mercantile Institution:
We have audited the accompanying balance sheets of Zions
Cooperative Mercantile Institution (ZCMI) as of January 28, 1995
and January 29, 1994, and the related statements of income,
stockholders' equity, and cash flows for each of the three years
in the period ended January 28, 1995. These financial statements
are the responsibility of ZCMI's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of ZCMI at January 28,
1995 and January 29, 1994, and the results of its operations and
its cash flows for each of the three years in the period ended
January 28, 1995 in conformity with generally accepted accounting
principles.
April 14, 1995
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEETS AS OF JANUARY 28, 1995 AND JANUARY 29, 1994
<TABLE>
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments (Note 1) $2,698,893 $ 5,315,486
Accounts receivable (less allowance for doubtful
accounts of $1,923,410 and $1,603,577, respectively)
54,678,782 52,621,267
Inventories (Note 1) 46,411,994 39,011,730
Prepaid expenses 760,540 837,138
Deferred income taxes (Notes 1 and 3) 1,290,090 2,185,937
Total current assets 105,840,299 99,971,558
PROPERTY, PLANT, AND EQUIPMENT (Notes 1, 2, 4, and 7):
Land 177,058 915,986
Buildings and improvements 4,207,567 8,361,427
Leasehold improvements 13,314,084 7,565,113
Furniture, fixtures, and equipment 14,399,848 12,351,089
Leased property under capital leases 31,364,742 30,202,645
Construction in progress 2,330,506 1,966,229
Total 65,793,805 61,362,489
Less accumulated depreciation and amortization 27,602,084 26,030,218
Property, plant, and equipment - net 38,191,721 35,332,271
OTHER ASSETS 597,899 643,325
TOTAL $ 144,629,919 $ 135,947,154
</TABLE>
See notes to financial statements.
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEETS AS OF JANUARY 28, 1995 AND JANUARY 29, 1994
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 6,647,500 $ 5,562,528
Short-term borrowings - banks (Note 4)
11,500,000 16,000,000
Current portion of long-term debt (Note 4)
145,685 278,281
Current portion of
obligations under capital leases
(Notes 2 and 7) 1,789,732 1,569,276
Accrued liabilities:
Salaries and commissions 1,963,659 2,066,820
Sales, payroll, and other taxes 3,804,817 3,904,853
Income taxes payable (Note 1) 1,468,899 1,379,232
Outstanding gift certificates 1,565,516 1,390,927
Reserve for store closings (Note 2) 767,650 3,484,052
Other (Note 6) 4,772,199 3,380,924
Deferred gain
on sale and leaseback (Notes 1 and 2) 1,221,221 1,155,047
Total current liabilities 35,646,878 40,171,940
LONG-TERM DEBT (Note 4) 30,222,221 18,987,228
DEFERRED INCOME TAXES (Notes 1 and 3) 1,301,605 1,591,258
LONG-TERM DEFERRED GAIN ON SALE AND
LEASEBACK (Notes 1 and 2) 3,136,552 2,723,483
OBLIGATIONS UNDER CAPITAL LEASES
(Notes 2 and 7) 20,751,983 21,380,478
TOTAL LIABILITIES 91,059,239 84,854,387
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY (Note 5):
Capital stock - par value $.001; 5,000,000 shares authorized;
2,150,322 and 2,135,776 shares issued at January 28,
1995 and January 29, 1994, respectively 2,150 2,136
Paid-in capital 14,618,479 14,477,678
Retained earnings 38,950,051 36,612,953
Stockholders' equity - net 53,570,680 51,092,767
TOTAL $ 144,629,919 $135,947,154
</TABLE>
See notes to financial statements.
ZIONS COOPERATIVE MERCANTILE INSTITUTION
<TABLE>
STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994, AND JANUARY 31, 1993
1995 1994 1993
<S> <C> <C> <C>
NET SALES AND OTHER INCOME
(Notes 1, 2, and 7) $ 244,923,590 $ 235,318,871 $ 221,830,198
COSTS AND EXPENSES (Note 7):
Cost of merchandise sold 161,672,320 154,871,242 145,186,900
Selling, general, and administrative expenses
(Notes 2 and 6) 74,782,477 69,793,529 67,904,462
Store closing costs (Note 2) 1,900,000 4,600,000
Interest expense:
Borrowings (Note 4) 2,088,029 1,393,485 1,512,608
Capital leases (Note 2) 2,087,194 2,222,941 2,235,026
Total costs and expenses 240,630,020 230,181,197 221,438,996
INCOME FROM OPERATIONS 4,293,570 5,137,674 391,202
GAIN ON SALE OF STORE (Note 4) 1,373,658
INCOME BEFORE INCOME TAX
EXPENSE 5,667,228 5,137,674 391,202
INCOME TAX EXPENSE (Notes 1 and 3) 2,042,977 1,984,800 100,200
NET INCOME $ 3,624,251 $ 3,152,874 $ 291,002
NET INCOME PER SHARE (Note 1) $ 1.69 $ 1.46 $ 0.13
</TABLE>
See notes to financial statements.
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994, AND JANUARY 31, 1993
Capital Stock Paid-In Treasury Stock Retained
Shares Amount Capital Shares Amount Earnings
<S> <C> <C> <C> <C> <C> <C>
BALANCE
FEBRUARY 1, 1992 2,168,942 $ 2,169 $ 14,902,535 12,168 $ 221,110 $ 35,754,417
Net income 291,002
Cash dividends ($.60 a share) (1,293,419)
BALANCE
JANUARY 31, 1993 2,168,942 2,169 14,902,535 12,168 221,110 34,752,000
Purchases of treasury stock 20,998 205,562
Net income 3,152,874
Cash dividends ($.60 a share) (1,291,921)
Retirement
of treasury
stock (33,166) (33) (424,857) (33,166) (426,672)
BALANCE
JANUARY 29,1994 2,135,776 2,136 14,477,678 NONE NONE 36,612,953
Purchases of treasury stock 1,500 14,202
Issuance of capital stock including
1,500 shares of
treasury
stock 14,546 14 140,801 (1,500) (14,202)
Net income 3,624,251
Cash dividends ($.60 a share) (1,287,153)
BALANCE
JANUARY 28,1995 2,150,322 $ 2,150 $ 14,618,479 NONE NONE $ 38,950,051
</TABLE>
See notes to financial statements.
ZIONS COOPERATIVE MERCANTILE INSTITUTION
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994, AND JANUARY 31, 1993
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,624,251 $ 3,152,874 $ 291,002
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,969,509 3,900,135 3,645,533
Deferred income taxes 606,194 522,401 (948,406)
Amortization of deferred
gain on sale and leaseback (1,186,055) (1,099,784) (667,995)
Provision for losses
on accounts receivable 1,099,970 599,970 699,970
Gain on sale of building (1,373,658)
Decrease (increase) in assets:
Accounts receivable (3,157,485) (4,259,746) 326,630
Inventories (7,400,264) (2,273,623) 730,965
Income tax refund receivable 355,980
Prepaid expenses 76,598 (160,391) 20,324
Other assets 45,426 48,137 (109,176)
Increase (decrease) in liabilities:
Accounts payable - trade 1,084,972 (1,324,495) 24,911
Accrued liabilities (1,264,068) (342,656) 6,134,801
Net cash provided by
(used in) operating activities (3,874,610) (1,237,178) 10,504,539
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant,
and equipment (6,527,906) (8,334,367) (3,508,947)
Proceeds from sale of property,
plant, and equipment 3,900,000 6,056,638 4,298,163
Net cash provided by
(used in) investing activities (2,627,906) (2,277,729) 789,216
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease)
in short-term borrowings (4,500,000) 9,000,000 (8,000,000)
Proceeds from long-term debt 12,807,776
Principal payments on
long-term debt (1,705,379) (256,125) (236,496)
Principal payments on
obligations under capital leases (1,570,136) (1,620,699) (1,334,110)
Proceeds from sale of capital stock 155,017
Purchase of treasury stock (14,202) (205,562)
Cash dividends (1,287,153) (1,291,921) (1,293,419)
Net cash provided by
(used in) financing activities 3,885,923 5,625,693 (10,864,025)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,616,593) 2,110,786 429,730
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,315,486 3,204,700 2,774,970
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,698,893 $ 5,315,486 $ 3,204,700
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 3,949,228 $ 3,680,762 $ 3,751,583
Income taxes 1,347,116 1,085,315 300
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations incurred for the acquisition
of property under capital lease $ 1,162,097 $ 2,492,609
Deferred gain on sale and leaseback of property, plant,
and equipment 1,665,298 $ 1,177,225 1,640,761
Transfer of current portion of line of credit from long-term
debt to short-term borrowings 5,000,000
Transfer from short-term borrowings to long-term debt 5,000,000
</TABLE>
See notes to financial statements.
ZIONS COOPERATIVE MERCANTILE INSTITUTION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Inventories - Substantially all inventories are valued at the
lower of cost or market, using the retail method, on the
last-in, first-out (LIFO) basis. If the inventories had been
valued on the first-in, first-out basis, total inventory
values would have been approximately $5,900,000 and $6,700,000
higher at January 28, 1995 and January 29, 1994, respectively.
Property, Plant, and Equipment - Property, plant, and
equipment are stated at cost. For financial statement
purposes, the straight-line method of depreciation is used for
buildings, and the sum-of-the-years digits and straight-line
methods are used for leasehold improvements and furniture,
fixtures, and equipment, over estimated useful lives ranging
from 3 to 50 years. See Note 2 for information concerning
leased property under capital leases.
Net Sales and Other Income - Net sales includes proceeds, net
of returns, from merchandise, services, and licensed
departments. The sales of licensed departments amounted to
approximately $20,423,000, $18,648,000, and $18,138,000 for
the years ended January 28, 1995, January 29, 1994, and
January 31, 1993, respectively. Included in net sales are
finance charges on retail credit accounts receivable totaling
approximately $5,830,000, $5,893,000, and $5,837,000 for the
years ended January 28, 1995, January 29, 1994, and January
31, 1993, respectively. Net sales and other income also
include the amortization of deferred gain on sale and
leaseback totaling approximately $1,186,000, $1,100,000, and
$668,000 for the years ended January 28, 1995, January 29,
1994, and January 31, 1993, respectively (see Note 2).
Net Income Per Share - Net income per share is based on
weighted average shares outstanding of 2,148,202 for the year
ended January 28, 1995, 2,153,325 for the year ended January
29, 1994, and 2,156,774 for the year ended January 31, 1993.
Stock options have been excluded from the computation of per
share amounts because they are antidilutive or because the
dilutive effect is not material.
Income Taxes - In February 1992, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" (the
"Statement") (see Note 3). Effective February 1, 1992, the
Company adopted the provisions of the Statement. The adoption
of the Statement on the Company's financial statements for the
year ended January 31, 1993 was immaterial.
Statements of Cash Flows - For purposes of the statements of
cash flows, ZCMI considers short-term investments, all with
original maturities of three months or less, to be cash
equivalents.
Fiscal Year - Effective January 29, 1994, ZCMI adopted a
fiscal year ending on the Saturday nearest the end of January.
2. COMMITMENTS AND CONTINGENCIES
ZCMI has noncancelable leases covering store premises,
fixtures, and equipment which expire on various dates to 2017.
Leases covering store premises contain provisions for
additional annual lease payments based on a percentage of
sales and have renewal options for various additional periods
ranging up to 68 years.
Minimum rentals of capital leases have been capitalized at the
present value of the rentals at the inception of the lease and
the obligation for such amount is recorded as a liability.
Amortization of capital lease property, which is included with
depreciation expense, is computed on the straight-line basis
over the lease terms and interest expense is accrued on the
basis of the outstanding lease obligation.
Leased property under capital leases by major classes was as
follows (see Note 7):
<TABLE>
Year Ended 1995 1994
<S> <C> <C>
Buildings and improvements $ 15,747,559 $ 15,747,559
Furniture, fixtures, and equipment 15,617,183 14,455,086
Total 31,364,742 30,202,645
Less accumulated amortization 16,006,822 14,069,663
Net assets under capital leases $ 15,357,920 $ 16,132,982
</TABLE>
Approximate future minimum lease payments on both capital and
noncancelable operating leases at January 28, 1995 were as
follows:
<TABLE>
Capital Operating
Leases Leases
<S> <C> <C>
Year ending:
1996 $ 3,866,854 $ 8,528,709
1997 4,097,214 8,850,625
1998 3,589,001 7,955,108
1999 3,090,501 6,834,498
2000 2,843,177 6,687,866
Later years 27,510,722 35,029,994
Total minimum lease payments 44,997,469 $ 73,886,800
Less amount representing interest 22,455,754
Present value of net minimum
lease payments 22,541,715
Less current portion 1,789,732
Long-term portion $ 20,751,983
</TABLE>
Approximate total operating lease expense was as follows:
<TABLE>
Year Ended 1995 1994 1993
<S> <C> <C> <C>
Minimum rentals on noncancelable
operating leases $ 8,025,000 $ 7,224,000 $ 6,203,000
Contingent rentals on noncancelable
operating leases 55,000 101,000 62,000
Other operating lease expenses 700,000 598,000 571,000
Total $ 8,780,000 $ 7,923,000 $ 6,836,000
</TABLE>
Contingent rentals on capital leases, which were included in
expense, totaled approximately $251,000, $253,000, and
$244,000 for the years ended January 28, 1995, January 29,
1994, and January 31, 1993, respectively.
During the years ended January 28, 1995, January 29, 1994, and
January 31, 1993, ZCMI sold certain furniture, fixtures, and
equipment with a net book value of approximately $35,000,
$4,880,000, and $1,867,000 for approximately $1,700,000,
$6,057,000, and $3,508,000, respectively. ZCMI agreed to
lease back such furniture, fixtures, and equipment under
operating lease agreements. The resulting gains on sale for
the years ended January 28, 1995, January 29, 1994, and
January 31, 1993 of approximately $1,665,000, $1,177,000, and
$1,641,000, respectively, are being amortized over the lease
terms ranging from 5 to 10 years. Amortization of gains on
all sale leasebacks for the years ended January 28, 1995,
January 29, 1994, and January 31, 1993 totaled approximately
$1,186,000, $1,100,000, and $668,000, respectively.
During the years ended January 29, 1994 and January 31, 1993,
management decided to close several of ZCMI's specialty
stores. Estimated closing expenses relating to these stores
during the years ended January 29, 1994 and January 31, 1993
totaled approximately $1,900,000 and $4,600,000, respectively,
of which approximately $768,000 and $3,484,000 were included
in accrued liabilities at January 28, 1995 and January 29,
1994, respectively. In connection with the store closings and
related termination and assignment of lease agreements to new
lessees, ZCMI was required to guarantee the payment of the
minimum lease payments by the new lessee totaling
approximately $2,251,000 through July 2001. Also in
connection with the store closings, ZCMI entered into a lease
termination agreement with a lessor in May 1993. This
agreement required a lump sum payment of $500,000 and monthly
payments totaling $476,000 through February 1, 2001, which
costs were accrued when the lease was terminated.
<PAGE>
3. INCOME TAXES
ZCMI has recorded net current deferred tax assets and net long-
term deferred tax liabilities as of January 28, 1995 and
January 29, 1994 as follows:
<TABLE>
1995 1994
Long- Long-
Current Term Current Term
<S> <C> <C> <C> <C>
Deferred tax assets $ 1,290,090 $ 1,634,167 $ 2,185,937 $ 1,748,075
Deferred tax liabilities (2,935,772) None (3,339,333)
Total $ 1,290,090 $(1,301,605)$ 2,185,937 $(1,591,258)
</TABLE>
Deferred tax assets and liabilities as of January 28, 1995 and
January 29, 1994 consisted of the following temporary
differences and carryforward items:
<TABLE>
1995 1994
Long- Long-
Assets Current Term Current Term
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable $ 721,277 $ 554,840
Capitalized tax inv. costs 34,477 51,803
Capital and operating leases treated
differently for income tax purposes $ 1,350,371
Deferred gross profit on sale
leaseback transactions $ 1,634,167 397,704
Accrued vacation expense not
currently recognized for income
tax purposes 246,468 272,774
Accrued store closing costs not
currently recognized for income
tax purposes 287,868 1,306,520
Total $ 1,290,090 $ 1,634,167 $2,185,937 $ 1,748,075
Liabilities
Accelerated tax depreciation
and amortization $ (185,530) None $(3,339,333)
Capital and operating leases treated
differently for income tax purposes (2,750,242)
Total None $(2,935,772) None $(3,339,333)
</TABLE>
Computed "expected" income taxes on income for financial
reporting purposes are reconciled to income tax expense as
follows:
<TABLE>
Year Ended
1995 1994 1993
<S> <C> <C> <C>
Federal income taxes at
the statutory rate (35% for 1995
and 1994; 34% for 1993) $ 1,983,530 $ 1,798,186 $ 133,008
Increase (decrease) resulting from:
State income taxes 198,185 179,819 10,000
Other (138,738) 6,795 (42,808)
Income tax expense $ 2,042,977 $ 1,984,800 $ 100,200
Consisting of:
Current:
Federal $ 1,274,744 $ 1,314,482 $ 937,666
State 162,039 147,917 110,940
Total 1,436,783 1,462,399 1,048,606
Deferred:
Federal 541,453 466,609 (848,164)
State 64,741 55,792 (100,242)
Total 606,194 522,401 (948,406)
Total expense $ 2,042,977 $ 1,984,800 $ 100,200
</TABLE>
4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings and long-term debt consisted of the
following at year end:
<TABLE>
1995 1994
<S> <C> <C>
Unsecured notes payable to banks under lines of credit,
due at various dates through October 1996 $ 40,307,777 $ 27,000,000
Unsecured term loan, 6.15%, due on February 10, 1994 5,000,000
Mortgage note, 8%, due in monthly installments
through March 1, 2002 and paid in full
during 1994 upon the sale of the
Ogden, Utah store" 1,571,752
Mortgage note, 8%, due in monthly installments
through February 1, 2003 1,560,129 1,693,757
Total 41,867,906 35,265,509
Less current portion 11,645,685 16,278,281
Long-term portion $ 30,222,221 $ 18,987,228
</TABLE>
Interest rates on the borrowings under lines of credit are
negotiable. At January 28, 1995 and January 29, 1994,
interest rates on these borrowings averaged 7.0% and 4.1%,
respectively.
Land and buildings with net book values of approximately
$2,219,000 and $4,380,000 at January 28, 1995 and January 29,
1994, respectively, were pledged as collateral to the mortgage
notes.
Short-term borrowings and long-term debt at January 28, 1995
matures as follows:
Amount
Year ending:
1996 $ 11,645,685
1997 28,964,509
1998 169,740
1999 183,828
2000 199,086
Thereafter 705,058
Total $ 41,867,906
ZCMI had unused lines of credit available with various banks
totaling approximately $8,700,000 at January 28, 1995. This
amount is generally available at the prime interest rate or
lower. In addition to the lines of credit, ZCMI had available
letters of credit totaling $1,500,000. Open letters of credit
at January 28, 1995 amounted to approximately $872,000.
5. EMPLOYEE STOCK OPTIONS
ZCMI had an incentive stock option plan for its key employees
which expired in 1992, under which options to purchase capital
stock were granted at a price not less than fair market value
on the date of grant. Changes in options to shares granted
under the plan and other related information were as follows:
<TABLE>
Year Ended 1995 1994 1993
<S> <C> <C> <C>
Options outstanding - beginning of year 19,900 29,800 47,940
Granted None None None
Exercised None None None
Forfeited (1,000) (9,900) (18,140)
Options outstanding - end of year 18,900 19,900 29,800
Options exercisable 18,900 19,900 29,800
Price range of outstanding options $14.00 $14.00 $12.67
to to to
$16.50 $16.50 $16.50
</TABLE>
6. EMPLOYEE BENEFIT PLANS
ZCMI has a trusteed, noncontributory retirement plan covering
substantially all of its employees. Benefits are based on
years of service and compensation history. ZCMI's funding
policy is to contribute annually the minimum amount required
by law.
The components of the net pension cost for the years ended
January 28, 1995, January 29, 1994, and January 31, 1993 were
as follows:
<TABLE>
Year Ended 1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during year $ 562,000 $ 456,000 $ 459,000
Interest cost on projected benefit obligation 1,876,000 1,832,000 1,728,000
Actual return on plan assets (596,000)(1,723,000)(1,362,000)
Net amortization and deferral (1,205,000) (247,000) (618,000)
Net periodic pension cost $ 637,000 $ 318,000 $ 207,000
Actuarial assumptions used at January 1, 1994, 1993, and 1992
to compute the above information were:
1994 1993 1992
Weighted average discount rate 8.0% 9.0% 9.0%
Rate of increase in compensation levels 4.0% 6.0% 6.0%
Expected long-term rate of return
on assets 9.5% 9.5% 9.5%
The following table sets forth the funded status and amounts
recognized in ZCMI's balance sheets at January 28, 1995 and
January 29, 1994, respectively, as of the actuarial valuation
dates shown:
</TABLE>
<TABLE>
January 1, 1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(21,265,000) $(22,326,000)
Accumulated benefit obligation $(21,445,000) $(22,537,000)
Projected benefit obligation $(22,145,000) $(23,398,000)
Plan assets at fair value -
primarily U.S. bonds 19,417,000 20,290,000
Plan assets less than projected
benefit obligation (2,728,000) (3,108,000)
Unrecognized prior service costs (375,000) (464,000)
Unrecognized net loss 3,667,000 4,959,000
Unrecognized net obligation at February 1, 1986
being recognized over 15 years (1,112,000) (1,298,000)
Pension asset (liability) recognized
in the balance sheet $ (548,000) $ 89,000
</TABLE>
Actuarial assumptions used at January 1, 1995 and 1994 to
compute the above information were:
1995 1994
Weighted average discount rate 9.0% 8.0%
Rate of increase in compensation levels 4.0% 4.0%
ZCMI has an employees' savings plan, which is a qualified,
contributory savings plan based on Section 401(k) of the
Internal Revenue Code. Total ZCMI contributions for the years
ended January 28, 1995, January 29, 1994, and January 31, 1993
were approximately $199,000, $195,000, and $184,000,
respectively. During the year ended January 29, 1994, ZCMI
amended its plan to allow employees the option to purchase
ZCMI stock. The amended plan also allows ZCMI to elect to
contribute shares of its common stock, at current market
prices, into the fund for up to 100% of the employer matching
contributions made to the plan for any period. At January 28,
1995, no shares have been contributed to this fund.
7. RELATED PARTY TRANSACTIONS
ZCMI's Downtown Store and Service Center, with net book values
of approximately $8,316,000 and $8,710,000 at January 28, 1995
and January 29, 1994, respectively, are leased from a major
stockholder under capital leases. Included in obligations
under capital leases are approximately $14,185,000 and
$14,364,000 at January 28, 1995 and January 29, 1994,
respectively, pertaining to these leases. Lease payments of
approximately $1,906,000, $1,908,000, and $1,899,000 were made
on these leases for the years ended January 28, 1995, January
29, 1994, and January 31, 1993, respectively. Included in
costs and expenses are transactions with companies in which a
major ZCMI stockholder has a significant interest totaling
approximately $3,156,000, $2,806,000, and $1,779,000 for the
years ended January 28, 1995, January 29, 1994, and January
31, 1993, respectively. Included in net sales are
transactions with major ZCMI stockholders totaling
approximately $351,000, $409,000, and $439,000 for the years
ended January 28, 1995, January 29, 1994, and January 31,
1993, respectively.
* * * * * *
