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 February 3, 1996
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 15, 1996, 2,159,745 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 15, 1996 of the voting stock held by
non-affiliates of the Registrant was $25,646,972.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The Registrant's Annual Report to Stockholders for the year ended
February 3, 1996 (Part II).
(2) The Registrant's 1996 Proxy Statement (Notice of Annual Meeting
of Shareholders to be held May 22, 1996) pursuant to
Regulation 14A (Parts I and III).<PAGE>
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, and operates in a for-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 Jan. 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. During the year ended February 3, 1996, ZCMI closed its Tri-City 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, its
own option charge account, third party credit cards, or layaway. Registrant's
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 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 2,683 employees (full-time
equivalent), an increase of 81 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 and Idaho.
<PAGE>
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 February 3, 1996. This building is considered adequate for present
needs. The operating lease expires February 1, 2012.
Downtown Ogden, Utah, was an owned 154,000 square foot building erected in
1967. 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 contains 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 28, 1995. This building is considered
adequate for present needs. The operating lease expires July 26, 2009.
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
February 3, 1996. 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 four retail specialty department stores in the state of
Utah 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.
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, 1997.
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 feet 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 February 3, 1996.
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 15, 1996
was 1,740.
<TABLE>
Year Ended
Quarter 1996 1995
<S> <C> <C>
1 $ 9.75-$ 9.87 $ 9.00-$ 9.25
2 $10.75-$12.25 $ 9.00-$10.25
3 $11.88-$12.11 $ 10.00-$10.25
4 $10.50-$11.50 $ 9.75-$ 9.88
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
Selected Financial Data
(Dollars in Thousands except per share amounts)
Year Ended 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales & Other Income $254,371 $244,924 $235,319 $221,830 $217,543
Net Income 582 3,624 3,153 291 77
Total Assets 136,505 144,630 135,947 128,635 128,113
Long-Term Debt 56,406 50,974 40,368 47,214 41,584
Per Share Amounts:
Earnings 0.27 1.69 1.46 0.13 0.04
Cash Dividends Declared 0.60 0.60 0.60 0.60 0.60
Book Value 23.64 24.61 23.92 22.92 23.39
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Overview of 1995
ZCMI endured a tough retail market, both nationally and locally, to post healthy
sales gains and reasonable profitability during 1995. As shown below, overall
sales increased 3.8% for the year ended February 3, 1996, compared to a 4.1%
increase for fiscal 1994 and a 6.3 % increase for fiscal 1993. Comparable store
locations which were open for the full fiscal year in the three comparable years
had overall sales increases of 4.0% for the year ended February 3, 1996 compared
to 4.3% for fiscal 1994 and 6.5% for fiscal 1993. These increases were
achieved as markets in Womens Ready to Wear departments revived and strong
markets continued in Home Furnishings and Smallwares departments. The increases
are despite continuing heavy competition in Electronics and Furniture areas.
<TABLE>
Sales
Year ended:
1996 1995 1994
<S> <C> <C> <C>
Total sales $246,436,800 $237,357,400 $228,006,300
Comp. store sales 245,652,000 236,092,200 226,414,800
Other Income 7,934,500 7,566,190 7,312,600
Net Income 581,640 3,624,251 3,152,874
Total Sales % Inc. 3.8% 4.1% 6.3%
Comp. store sales % inc. 4.0 4.3 6.5
Other Inc. % inc. 4.9 3.5 0.3
Net Income per share $0.27 $1.69 $1.46
</TABLE>
Other income has increased by 4.9% for the year ended February 3, 1996 as
compared to an increase of 3.5% increase in fiscal 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
decreasing as a result of continuing consumer usage of third party credit, such
as Visa and Mastercard, and as customers pay accounts quicker to avoid interest
charges. Other income from this source decreased 2.0% during the year ended
February 3, 1996 after increasing slightly in the previous fiscal year. 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 fiscal year
1993 to recognizing all deferred gross profit in other income during fiscal
year 1994. This source of other income increased during the fiscal year ended
February 3, 1996 as a result of further asset leasing creating other deferred
gross profit. Net Income decreased as a result of items covered in the
analysis of operations below.
<TABLE>
Analysis of Credit Balances
1996 1995 1994
<S> <C> <C> <C>
Average Monthly Collection Percent 21.7% 20.9% 21.8%
Annual Turnover 2.61 2.51 2.61
</TABLE>
The collection rate has decreased slightly from 21.75% in fiscal 1993 to 21.71%
in fiscal 1995 and the annual turnover has decreased from 2.61 in fiscal 1993 to
2.60 in fiscal 1995. This decrease resulted in part from the fact that ZCMI
extended the terms on Club Plan purchases from 12 months to 24 months during
1994 and also offered several deferred payment promotions on certain purchases
for the first time in 1994. Both of these promotions raised balances while
either lowering or deferring the payments from normal payment patterns. The
significant decrease during fiscal 1994 resulted from large decorative home
sales which had deferred payments for one year.
During the year ended February 3, 1996, ZCMI closed the Tri-City Mall store in
Mesa, Arizona. This store had been converted to an outlet store format during
fiscal 1992, as were the stores in the now-closed Village Fair Mall in Phoenix,
Arizona, the now-closed Superstition Springs store in Mesa, Arizona, and the
East Bay Mall store in Provo, Utah. ZCMI closed the Village Fair Mall store in
Phoenix, Arizona during the year ended January 29, 1994 and closed the
Superstition Springs store in Mesa, Arizona during the year ended January 28,
1995. No new stores are planned for closing or opening during the current
fiscal year.
Retailing in general continues to struggle as retailers deal with problems
caused by over-storing in the real estate markets, and consolidation among
retailers to provide more efficient, mass merchandising operations. Sales
continue to decrease in retail markets on the East Coast and West Coast, with
markets in growth areas in the Rockies, Midwest and South showing economic
gains. Divisionally, Ready to Wear merchandise showed promising growth,
although not approaching substantial increases, while Junior Ready to Wear
and Men's continued level sales during the fiscal year period. Hard lines
divisions recorded substantial increases, with the exception of Electronics
and Home Office, as competition in local market areas took its toll on sales.
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 increased to 69.5% of sales during the year
ended Feb. 3, 1996 as depicted in the chart below. This percentage compares
with 68.1% during the year ended Jan. 28, 1995 and 67.9% during the year ended
January 29, 1994.
<TABLE>
Year ended:
1996 1995 1994
<S> <C> <C> <C>
Cost of Merchandise Sold $171,161,111 $161,672,320 $154,871,242
Costs as a percent of sales 69.5% 68.1% 67.9%
</TABLE>
The increase in Costs of Merchandise Sold results from increases in purchase
costs from vendors, markdowns, shrinkage, and workrooms. These increases were
offset by decreases in buying costs and a slight increase in discounts. These
changes are summarized in the table presented below:
<TABLE>
Cost of Merchandise Sold Factors
Year ended:
1996 1995 1994
<S> <C> <C> <C>
Cost purchases percent 55.7% 55.1% 54.9%
Markdowns (costed) 11.0 10.7 10.4
Shrinkage (costed) 0.9 0.3 0.5
Discounts on invoices (1.4) (1.4) (1.5)
Workroom Costs 1.3 1.3 1.4
Other buying costs 2.0 2.1 2.2
Total costs of merchandise sold 69.5% 68.1% 67.9%
</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. Also, the calculation of LIFO inventories
resulted in a charge to cost of merchandise sold of $608,153 during fiscal 1995,
compared to a credit of $804,951 during fiscal 1994, or a change of
$1.4 million. Markdowns have risen as an effect of the slowdown in ready to
wear and as a result of heavy winter inventories, resulting from a warmer
than normal fall market. Shrinkage increased as new UPC code systems were
implemented, which resulted in some markdowns not being accurately recognized.
Lastly, buying costs continue to decline as a result of streamlining the
buying function and as more efficient merchandising programs are implemented
for the buying office use.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As shown in the chart below, selling, general and administrative expenses
decreased to 30.4% as a percent to sales and other income during the year ended
February 3, 1996. This compares to 30.5% in the year ended January 28, 1995 and
29.7% in the year ended January 29, 1994. Expenses have increased in the past
two years 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. Pension and health insurance expense
decreases offset this increase, as did decreases in electrical costs and in bad
debt expense. However, payroll has increased dramatically during the year ended
February 3, 1996 due to pressures as competitive payrolls continue to rise in
the prime market areas of ZCMI.
<TABLE>
Selling, General and Administrative Expenses
Year ended:
1996 1995 1994
<S> <C> <C> <C>
Selling, general and administrative expenses $77,417,255 $74,782,477 $69,793,529
Expenses as a percent to sales and other income 30.4% 30.5% 29.7%
Percent increase 3.5 7.1 2.8
Selling, general and administrative expenses in the past three fiscal years have
stayed fairly constant as a result of a decisive move to close stores in the
Tri-City Mall, Village Fair Mall and Superstition Springs, as previously
mentioned. As part of the 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 past two fiscal years. 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 or Tri-City store closures. These guarantees
and obligations are reflected in disclosure data on the financial statements.
<PAGE>
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.
With continued favorable short-term loan rates to the Company and the expected
dollar level of debt financing required, Managment still considers short-term
borrowing to be the best strategy to meet its working capital needs.
Cash Flows
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 February 3, 1996 after
amortization, depreciation, and other non-cash adjustments, provided more cash
than was used. The majority of cash was provided from Accounts Receivable
through a reduction of customer's balances mainly in the Option Plan area, but
also reductions in the Extras Plan area. In addition, a reduction in Men's
locker stock inventory and an increase in Accts Payable - Trade provided cash.
Cash was used in operating activities to increase Prepaid Expenses, as leases
were prepaid for the next fiscal month on Feb. 1, and to reduce Accrued
Liabilities which included store closing costs, Salaries and Comm. Payable,
and Sales, Payroll, and Other Taxes Payable. Sales, Payroll and Other Taxes
Payable included several types of taxes which were paid on Feb. 1st and
normally would have been accrued in other fiscal years.
Net cash from investing activities in the year ended February 3, 1996 provided
substantial cash from the proceeds of the sale of property, plant, and
equipment, which were subsequently leased back to provide positive cash flows.
Cash was used to purchase other property, plant and equipment, although more
cash was provided from investing activities than was used in the purchase of
equipment.
The categories of capital expenditures are summarized below:
</TABLE>
<TABLE>
Capital Expenditures
Year ended:
1996 1995 1994
<S> <C> <C> <C>
Furniture, fixtures and equipment $2,423,607 $2,048,757 $1,832,470
POS terminal replacement 3,762,079
Store remodeling and improvement 2,034,137 9,088,400 2,739,818
Total Capital Expenditures $4,457,744 $11,137,157 $8,334,367
Property under capital lease 1,162,097
Total Additions $4,457,744 $12,299,254 $8,334,367
</TABLE>
Capital expenditures during the year ended February 3, 1996 consisted of the
completion of major remodeling in the Cottonwood Mall location and the
completion of the Ogden Tiffin Room in the new Ogden City Mall location.
Also, final remodeling was completed in the Layton Hills Mall second floor,
which was completed in March, 1995. A new facade was added to the Valley Fair
Mall location during the last half of the year. A new reengineering of the
advertising area was begun in the last half of the fiscal year.
Major remodeling of three stores was completed in the fiscal year ended January
28, 1995. The Cottonwood store, Layton Hills, and the Valley Fair locations
were substantially remodeled and improved. 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.
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. In addition, the Southtowne store will be extensively
remodeled at a cost of approximately $700,000.
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:
1996 1995 1994
<S> <C> <C> <C>
Used lines of credit $37,800,873 $40,307,777 $27,000,000
Unused lines of credit 15,699,127 8,692,223 8,000,000
Total $53,500,000 $49,000,000 $35,000,000
</TABLE>
Net cash from financing activities in the year ended February 3, 1996 decreased
as lines of credit loans were reduced, dividends were paid, and principal
payments were made on obligations under capital leases.
As a result of the above, there was an decrease in cash and cash equivalents
during the year ended February 3, 1996.
Financial Ratios
Liquidity and capital resources can be measured by the following ratios:
<TABLE>
Ratios
Year ended:
1996 1995 1994
<S> <C> <C> <C>
Cash and short-term investments $ 2,698,087 $ 2,698,893 $ 5,315,486
Net accounts receivable 50,721,239 54,678,782 52,621,267
Total $53,419,326 $57,377,675 $57,936,753
Total current assets 102,633,186 105,840,299 99,971,558
Total current liabilities 24,856,073 35,646,878 40,171,940
Quick ratio 2.15 1.61 1.44
Current ratio 4.13 2.97 2.49
Long term debt $59,008,257 $52,909,621 $42,215,263
Stockholders equity 51,062,144 53,570,680 51,092,767
Total capitalization $110,070,401 $106,480,301 $93,308,030
LT Debt to Equity Ratio 115.6% 98.8% 82.6%
LT Debt to Capitalization Ratio 53.6% 49.7% 45.2%
Return on Equity 1.1% 6.8% 6.2%
</TABLE>
As indicated in the table above, the quick ratio has increased from 1.61 times
in the year ended January 28, 1995 to 2.15 times in the year ended February 3,
1996. This is a result of short term liabilities, specifically short term
borrowings, decreasing from the prior year. As has been discussed, short term
borrowings were decreased by: first, selling and subsequently leasing back some
furniture, fixtures and equipment; and second, switching to longer term
borrowings. The current ratio also increased from 2.97 times in the year ended
January 28, 1995 to 4.13 times in the year ended February 3, 1996. This
increase also is a result of short term borrowing decreases. As a result of the
shift to long term borrowing, both the debt to equity ratio and the debt to
capitalization ratio have increased. Both of the ratios are also affected by
the pension liability adjustment. If the pension liability adjustment was not
included in the LT Debt to Capitalizaiton ratio, the ratio would be 52.7%.
Likewise, if the pension liability adjustment was not included in the LT Debt to
Equity ratio, that ratio would be 111.4%.
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 increase for the year ended February 3, 1996 was 0.7% compared to a
decrease of (0.5)% in the year ended January 28, 1995. However, since ZCMI uses
the LIFO method for valuing inventories, the increase does have an effect on the
cost of merchandise sold. The LIFO charge to cost of merchandise sold for the
year ended February 3, 1996 was $608,153, compared to a credit to cost of
merchandise sold of $804,951 for the year ended January 28, 1995 and a charge to
cost of merchandise sold of $451,855 in the year ended January 29, 1994. As has
been discussed, this resulted in a net increase in cost of merchandise sold of
approximately $1.4 million from fiscal 1994 to fiscal 1995.
As noted in the financial statements, actuarial estimates utilizing the discount
rate of 7.75% were used in computing the pension expense for the year ended
February 3, 1996. 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
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". This statement addresses the accounting for the impairment of
long-lived assets, such as premises, furniture and equipment, certain
identifiable intangible and goodwill related to those assets. Long-lived assets
and certain identifiable intangibles are to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss is recognized when the sum of the
future cash flows (undiscounted and without interest charges expected from the
use of the asset and its eventual disposition) is less than the carrying amount
of the asset. The statement also requires that long-lived assets and
identifiable intangibles, except for assets of a discontinued operation held for
disposal, be accounted for at the lower of cost or fair value less cost to
sell. SFAS No. 121 is effective for fiscal years beginning after Dec. 15, 1995.
The impact of SFAS No. 121 on ZCMI is not expected to be material in relation to
the financial statements.
In October 1995, the Financial Accounting standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". SFAS No. 123 defines a fair value
based method of accounting for an employee stock option. Fair value of the
stock option is determined considering factors such as the exercise price, the
expected life of the option, the current price of the underlying stock and its
volatility, expected dividends on the stock, and the risk-free interest rate
for the expected term of the option. Under the fair value based method,
compensation cost is measured at the grant date based on the fair value of
the award and is recognized over the service period. A company may elect to
adopt SFAS No. 123 or elect to
continue accounting for its stock option or similar equity awards using the
intrinsic method, where compensation cost is measured at the date of grant based
on the excess of the market value of the underlying stock over the exercise
price. If a company elects not to adopt SFAS No. 123, then it must provide pro
forma disclosure of net income and earnings per share, as if the fair value
based method had been applied. SFAS No. 123 is effective for transactions
entered into for fiscal years that begin after December 15, 1995. Pro forma
disclosures for entities that elect to continue to measure compensation cost
under the old method must include the effects of all awards granted in fiscal
years that begin after December 15, 1994. It is currently anticipated that
ZCMI will continue to account for stock-based compensation plans under the
intrinsic method (Accounting Principles Board Opinion No. 25) and, therefore,
SFAS No. 123 will have no effect on ZCMI's financial statements.
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
February 3, 1996. 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 1996 Proxy Statement
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information for response to this item is contained in the 1996 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 1996 Proxy Statement
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information for response to this item is contained in the 1996 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 February 3, 1996 and January 28, 1995 *
Statements of Income for the Years Ended February 3, 1996,
January 28, 1995, and January 29, 1994 *
Statements of Stockholders' Equity for the Years Ended
February 3, 1996, January 28, 1995, and January 29, 1994 *
Statements of Cash Flows for the Years Ended
February 3, 1996, January 28, 1995, and January 29, 1994 *
Notes to Financial Statements *
2. Financial Statement Schedule:
Independent Auditors' Report 9
Financial Statement Schedule for the Years Ended
February 3, 1996, January 28, 1995, and January 29, 1994 -
Schedule II - Valuation Accounts 10
<PAGE>
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 February 3, 1996,
incorporated herein by reference.
3. Exhibits
Exhibit No.
(3) Articles of incorporation and by-laws Previously 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 earnings
per share computation - Refer to Annual Report
to Stockholders incorporated herein by
reference
(12) Statements regarding computation of ratios Not applicable
(13) Annual report to stockholders Incorporated
herein 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 February 3, 1996 and January 28, 1995, and for each of
the three years in the period ended February 3, 1996, and have issued our report
thereon dated April 12, 1996; such financial statements and report are included
in your 1996 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 26, 1996
SUPPLEMENTAL SCHEDULE II
ZIONS COOPERATIVE MERCANTILE INSTITUTION
VALUATION ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995, AND JANUARY 29, 1994
<TABLE>
Additions
Balance at Charged to Recoveries Deductions - Balance
Beginning Costs and on Accounts Accounts at End
of Year Expenses Charged Off Charged Off of Year
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C> <C>
1996 $ 1,923,410 $ 350,000 $ 175,340 $ 1,141,390 $1,307,360
1995 $ 1,603,577 $ 1,099,970 $ 174,786 $ 954,923 $1,923,410
1994 $ 1,725,315 $ 599,970 $ 177,467 $ (899,175) $1,603,577
RESERVE FOR PURCHASE
DISCOUNTS (1):
1996 $ 140,300 $ 19,800 $ 160,100
1995 $ 66,400 $ 73,900 $ 140,300
1994 $ 211,500 $ (145,100) $ 66,400
(1) Deducted from inventory.
</TABLE>
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
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) _______, 1996
(Signature and Title) Keith C. Saunders Executive V.P., CFO,
and Director
(Date) _______, 1996
(Signature and Title) R. Barry Arnold Vice President and
Director
(Date) _______, 1996
(Signature and Title) L. Tom Perry Director
(Date) ______ , 1996
(Signature and Title) Patricia Madsen Director
(Date) ______, 1996
(Signature and Title) S. F. Eccles Director
(Date) ______, 1996
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 12, 1996, appearing in and incorporated by reference in the Annual
Report on Form 10-K of Zions Cooperative Mercantile Institution for the year
ended February 3, 1996.
Salt Lake City, Utah
April 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 2,698,087
<SECURITIES> 0
<RECEIVABLES> 52,028,599
<ALLOWANCES> 1,307,360
<INVENTORY> 45,877,368
<CURRENT-ASSETS> 102,633,186
<PP&E> 61,048,423
<DEPRECIATION> 27,774,562
<TOTAL-ASSETS> 136,504,946
<CURRENT-LIABILITIES> 24,856,073
<BONDS> 56,406,273
0
0
<COMMON> 14,731,363
<OTHER-SE> 36,330,781
<TOTAL-LIABILITY-AND-EQUITY> 136,504,946
<SALES> 246,436,800
<TOTAL-REVENUES> 254,371,323
<CGS> 171,161,111
<TOTAL-COSTS> 248,228,366
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 350,000
<INTEREST-EXPENSE> 5,010,526
<INCOME-PRETAX> 782,431
<INCOME-TAX> 200,791
<INCOME-CONTINUING> 581,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 581,640
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
ZIONS COOPERATIVE
MERCANTILE INSTITUTION
Financial Statements as of February 3, 1996 and January 28, 1995 and for Each of
the Three Years in the Period Ended February 3, 1996 and Independent Auditors'
Report
<PAGE>
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 February 3, 1996 and January 28, 1995, and the related
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended February 3, 1996. 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 February 3, 1996 and January 28,
1995, and the results of its operations and its cash flows for each of the three
years in the period ended February 3, 1996 in conformity with generally accepted
accounting principles.
April 29, 1996
<PAGE>
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEETS AS OF FEBRUARY 3, 1996 AND JANUARY 28, 1995
<S> <C> <C>
ASSETS 1996 1995
CURRENT ASSETS:
Cash and short-term investments (Note 1) $ 2,698,087 $ 2,698,893
Accounts receivable (less allowance for doubtful
accounts of $1,307,360 and $1,923,410,
respectively) 50,721,239 54,678,782
Inventories (Note 1) 45,877,368 46,411,994
Prepaid expenses 1,320,685 760,540
Deferred income taxes (Notes 1, 3 and 6) 2,015,807 1,290,090
Total current assets 102,633,186 105,840,299
PROPERTY, PLANT, AND EQUIPMENT (Notes 1, 2, 4 and 7):
Land 177,058 177,058
Buildings and improvements 4,241,162 4,207,567
Leasehold improvements 14,634,910 13,314,084
Furniture, fixtures, and equipment 9,520,103 14,399,848
Leased property under capital leases 31,364,742 31,364,742
Construction in progress 1,110,448 2,330,506
Total 61,048,423 65,793,805
Less accumulated depreciation and amortization 27,774,562 27,602,084
Property, plant, and equipment - net 33,273,861 38,191,721
OTHER ASSETS 597,899 597,899
TOTAL $136,504,946 $144,629,919
See notes to financial statements. (Continued)
</TABLE>
<PAGE>
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEETS AS OF FEBRUARY 3, 1996 AND JANUARY 28, 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
Accounts payable - trade $ 7,370,076 $ 6,647,500
Short-term borrowings - banks (Note 4) 2,500,000 11,500,000
Current portion of long-term debt (Note 4) 310,654 145,685
Current portion of obligations under
capital leases (Notes 2 and 7) 2,291,330 1,789,732
Accrued liabilities:
Salaries and commissions 1,705,579 1,963,659
Sales, payroll, and other taxes 1,391,011 3,804,817
Income taxes payable (Notes 1 and 3) 400,000 1,468,899
Outstanding gift certificates 1,611,472 1,565,516
Reserve for store closings (Note 2) 205,332 767,650
Pension liability (Note 6) 1,625,000 548,000
Other 3,837,483 4,224,199
Deferred gain on sale and leaseback
(Notes 1 and 2) 1,608,136 1,221,221
Total current liabilities 24,856,073 35,646,878
LONG-TERM DEBT (Note 4) 37,886,428 30,222,221
DEFERRED INCOME TAXES (Notes 1 and 3) 682,863 1,301,605
LONG-TERM DEFERRED GAIN ON SALE AND
LEASEBACK (Notes 1 and 2) 3,497,593 3,136,552
OBLIGATIONS UNDER CAPITAL LEASES (Notes 2 and 7) 18,519,845 20,751,983
TOTAL LIABILITIES 85,442,802 91,059,239
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY (Note 5):
Capital stock - par value $.001; 5,000,000 shares authorized;
2,159,745 and 2,150,322 shares issued at February 3,
1996 and January 28, 1995, respectively 2,160 2,150
Paid-in capital 14,729,203 14,618,479
Pension liability adjustment (Note 6) (1,908,750)
Retained earnings 38,239,531 38,950,051
Stockholders' equity - net 51,062,144 53,570,680
TOTAL $ 136,504,946 $144,629,919
See notes to financial statements. (Concluded)
</TABLE>
<PAGE>
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995, AND JANUARY 29, 1994
1996 1995 1994
<S> <C> <C> <C>
NET SALES AND OTHER INCOME
(Notes 1, 2, and 7) $ 254,371,323 $ 244,923,590 $ 235,318,871
COSTS AND EXPENSES (Note 7):
Cost of merchandise sold 171,161,111 161,672,320 154,871,242
Selling, general, and
administrative expenses
(Notes 2 and 6) 77,417,255 74,782,477 69,793,529
Store closing costs (Note 2) 1,900,000
Interest expense:
Borrowings (Note 4) 2,938,466 2,088,029 1,393,485
Capital leases (Note 2) 2,072,060 2,087,194 2,222,941
Total costs and expenses 253,588,892 240,630,020 230,181,197
INCOME FROM OPERATIONS 782,431 4,293,570 5,137,674
GAIN ON SALE OF STORE 1,373,658
INCOME BEFORE INCOME TAX
EXPENSE 782,431 5,667,228 5,137,674
INCOME TAX EXPENSE (Notes 1 and 3) 200,791 2,042,977 1,984,800
NET INCOME $ 581,640 $ 3,624,251 $ 3,152,874
NET INCOME PER SHARE (Note 1) $ 0.27 $ 1.69 $ 1.46
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995, AND JANUARY 29, 1994
Pension
Capital Stock Paid-in Treasury Stock Liability Retained
Shares Amount Capital Shares Amount Adjustment Earnings
<C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 1, 1993
2,168,942 $ 2,169 $14,902,535 12,168 $ 221,110 NONE $34,752,000
Purchases of treasury stock 20,998 205,562
Net income 3,152,874
Cash dividends ($.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 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 NONE 38,950,051
Purchases of treasury stock 5,350 54,035
Issuance of capital stock
including 5,350 shares of
treasury stock
9,423 10 110,724 (5,350) (54,035)
Pension liability adjustment (Note 6) $(1,908,750)
Net income 581,640
Cash dividends ($.60 a share) (1,292,160)
BALANCE, FEBRUARY 3, 1996
2,159,745 $2,160 $14,729,203 NONE NONE $(1,908,750) $38,239,531
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995, AND JANUARY 29, 1994
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $581,640 $3,624,251 $3,152,874
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 4,457,778 3,969,509 3,900,135
Deferred income taxes (199,209) 606,194 522,401
Amortization of deferred gain on sale
and leaseback (1,302,992) (1,186,055) (1,099,784)
Gain on sale of store (1,373,658)
Change in operating assets and liabilities:
Accounts receivable 3,957,543 (2,057,515) (3,659,776)
Inventories 534,626 (7,400,264) (2,273,623)
Prepaid expenses (560,145) 76,598 (160,391)
Other assets 45,426 48,137
Accounts payable - trade 722,576 1,084,972 (1,324,495)
Accrued liabilities (6,620,863) (1,264,068) (342,656)
Net cash provided by (used in)
operating activities 1,570,954 (3,874,610) (1,237,178)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and
equipment (2,528,970) (6,527,906) (8,334,367)
Proceeds from sale of property, plant,
and equipment 5,040,000 3,900,000 6,056,638
Net cash provided by (used in)
investing activities 2,511,030 (2,627,906) (2,277,729)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term
borrowings (9,000,000) (4,500,000) 9,000,000
Proceeds from long-term debt 8,093,095 12,807,776
Principal payments on long-term debt(263,919) (1,705,379) (256,125)
Principal payments on obligations under
capital leases (1,730,540) (1,570,136) (1,620,699)
Proceeds from sale of capital
stock 164,769 155,017
Purchase of treasury stock (54,035) (14,202) (205,562)
Cash dividends (1,292,160) (1,287,153) (1,291,921)
Net cash provided by (used in)
financing activities (4,082,790) 3,885,923 5,625,693
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (806) (2,616,593) 2,110,786
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,698,893 5,315,486 3,204,700
CASH AND CASH EQUIVALENTS AT END
OF YEAR $2,698,087 $2,698,893 $5,315,486
(Continued)
</TABLE>
<PAGE>
<TABLE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995, AND JANUARY 29, 1994
1996 1995 1994
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid during the year for:
Interest $5,077,498 $3,949,228 $3,680,762
Income taxes 1,468,899 1,347,116 1,085,315
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations incurred for
the acquisition of property under capital
lease $1,162,097
Deferred gain on sale and leaseback of
property, plant, and equipment $2,050,948 $1,665,298 $1,177,225
Transfer of current portion of line of
credit from long-term debt to
short-term borrowings 5,000,000
Increase in accrued liabilities and
corresponding decrease in stockholders'
equity due to pension liability
adjustment (Note 6) 3,054,000
Increase in deferred tax assets and
corresponding increase in stockholders'
equity due to pension liability
adjustment (Note 6) (1,145,250)
See notes to financial statements. (Concluded)
</TABLE>
<PAGE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED FEBRUARY 3, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature of Operations - Zions Cooperative Mercantile Institution (ZCMI) was
organized as a Utah corporation in 1868 and was the first full-line department
store in the United States. ZCMI is in the retail line of business, operating
both full-line conventional department stores and men's and women's ready to
wear specialty stores and outlet stores. The full-line conventional department
stores are located in 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 and St. George, Utah.
Use of Estimates in Preparing Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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 $6,500,000 and $5,900,000 higher at Feb.
3, 1996 and January 28, 1995, 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 $21,690,000, $20,423,000, and $18,648,000
for the years ended February 3, 1996, January 28, 1995, and January 29, 1994,
respectively. Included in net sales are finance charges on retail credit
accounts receivable totaling approximately $5,716,000, $5,830,000, and
$5,893,000 for the years ended Feb. 3, 1996, Jan. 28, 1995, and Jan. 29, 1994,
respectively. Net sales and other income also include the amortization of
deferred gain on sale and leaseback totaling approximately $1,303,000,
$1,186,000, and $1,100,000 for the years ended February 3, 1996, January 28,
1995, and January 29, 1994, respectively (see Note 2).
Income Taxes - ZCMI accounts for its taxes based on Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The Statement
requires an asset and liability approach for financial accounting and reporting
for income taxes.
Net Income Per Share - Net income per share is based on weighted average shares
outstanding of 2,153,600 for the year ended February 3, 1996, 2,148,202 for the
year ended January 28, 1995, and 2,153,325 for the year ended January 29, 1994.
Stock options have been excluded from the computation of per share amounts
because they are antidilutive or because the dilutive effect is not material.
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.
<PAGE>
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
1996 1995
<S> <C> <C>
Buildings and improvements $ 15,747,559 $ 15,747,559
Furniture, fixtures, and equipment 15,617,183 15,617,183
Total 31,364,742 31,364,742
Less accumulated amortization 18,114,174 16,006,822
Net assets under capital leases $ 13,250,568 $ 15,357,920
</TABLE>
Approximate future minimum lease payments on both capital and noncancelable
operating leases at February 3, 1996 were as follows:
<TABLE>
Capital Operating
Leases Leases
<S> <C> <C>
Year ending:
1997 $ 4,097,214 $10,212,372
1998 3,589,001 9,316,855
1999 3,090,501 8,196,245
2000 2,843,177 7,906,227
2001 2,283,789 8,223,276
Later years 25,226,933 33,232,450
Total minimum lease payments 41,130,615 $ 77,087,425
Less amount representing interest 20,319,440
Present value of net minimum lease
payments 20,811,175
Less current portion 2,291,330
Long-term portion $18,519,845
</TABLE>
Approximate total operating lease expense was as follows:
<TABLE>
Year Ended
1996 1995 1994
<S> <C> <C> <C>
Minimum rentals on noncancelable
operating leases $ 8,773,000 $ 8,025,000 $7,224,000
Contingent rentals on noncancelable
operating leases 99,000 55,000 101,000
Other operating lease expenses 696,000 700,000 598,000
Total $ 9,568,000 $ 8,780,000 $7,923,000
</TABLE>
Contingent rentals on capital leases, which were included in expense, totaled
approximately $251,000, $251,000, and $253,000 for the years ended February 3,
1996, January 28, 1995, and January 29, 1994, respectively.
During the years ended February 3, 1996, January 28, 1995, and January 29, 1994,
ZCMI sold certain furniture, fixtures, and equipment with a net book value of
approximately $2,989,000, $35,000, and $4,880,000 for approximately $5,040,000,
$1,700,000, and $6,057,000, respectively. ZCMI agreed to lease back such
furniture, fixtures, and equipment under operating lease agreements. The
resulting gains on sale for the years ended February 3, 1996, January 28, 1995,
and January 29, 1994 of approximately $2,051,000, $1,665,000, and $1,177,000,
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
February 3, 1996, January 28, 1995, and January 29, 1994 totaled approximately
$1,303,000, $1,186,000, and $1,100,000, respectively.
During the year ended January 29, 1994, management decided to close several of
ZCMI's specialty stores. Estimated closing expenses relating to these stores
during the year ended January 29, 1994 totaled approximately $1,900,000, of
which approximately $205,000 and $768,000 were included in accrued liabilities
at February 3, 1996 and January 28, 1995, 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 lessees totaling approximately $1,306,000 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 payments through February 1, 2001 totaling
approximately $165,000 and $197,000 as of February 3, 1996 and January 28, 1995,
respectively. These payments are included in accrued liabilities as of
February 3, 1996 and January 28, 1995.
3. INCOME TAXES
ZCMI has recorded current deferred tax assets and net long-term deferred tax
liabilities as of February 3, 1996 and January 28, 1995 as follows:
<TABLE>
1996 1995
Long- Long-
Current Term Current Term
<S> <C> <C> <C> <C>
Deferred tax assets $ 2,015,807 $ 2,902,983 $ 1,290,090 $ 1,634,167
Deferred tax liabilities (3,585,846) (2,935,772)
Total $ 2,015,807 $ (682,863) $ 1,290,090 $(1,301,605)
</TABLE>
<PAGE>
<TABLE>
Deferred tax assets and liabilities as of February 3, 1996 and January 28, 1995
consisted of the following temporary differences and carryforward items:
1996 1995
Long- Long-
Assets Current Term Current Term
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable $ 489,214 $ 721,277
Capitalized tax inventory costs 34,477
Deferred gross profit on sale
leaseback transactions $ 1,914,648 $ 1,634,167
Accrued vacation expense
not currently recognized
for income tax purposes 286,527 246,468
Accrued store closing costs
not currently recognized
for income tax purposes 77,243 287,868
Accrued legal costs 17,573
Pension liability adjustment
(see Note 6) 1,145,250
Net property, plant, and
equipment for tax in
excess of financial
reporting 988,335
Total $ 2,015,807 $ 2,902,983 $ 1,290,090 $ 1,634,167
Liabilities
Net property, plant, and
equipment for financial
reporting in excess of tax $ (185,530)
Capital and operating leases
treated differently for
income tax purposes $(3,585,846) (2,750,242)
Total None $(3,585,846) None $(2,935,772)
</TABLE>
Computed "expected" income taxes on income for financial reporting purposes are
reconciled to income tax expense as follows:
<TABLE>
Year Ended
1996 1995 1994
<S> <C> <C> <C>
Federal income taxes at the statutory rate $ 274,327 $ 1,983,530 $ 1,798,186
Increase (decrease) resulting from:
State income taxes 27,377 198,185 179,819
Other (100,913) (138,738) 6,795
Income tax expense $ 200,791 $ 2,042,977 $ 1,984,800
Consisting of:
Current:
Federal $ 357,280 $ 1,274,744 $ 1,314,482
State 42,720 162,039 147,917
Total 400,000 1,436,783 1,462,399
Deferred:
Federal (177,933) 541,453 466,609
State (21,276) 64,741 55,792
Total (199,209) 606,194 522,401
Total expense $ 200,791 $ 2,042,977 $ 1,984,800
</TABLE>
4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings and long-term debt consisted of the following at year end:
<TABLE>
1996 1995
<S> <C> <C>
Unsecured notes payable to banks under lines
of credit, due at various dates through
October 1996 $ 37,800,873 $ 40,307,777
Mortgage note, 8%, due in monthly installments
through February 2003 1,402,819 1,560,129
Note payable, 10.255%, due in quarterly
installments through December 2002 1,493,390
Total 40,697,082 41,867,906
Less current portion 2,810,654 11,645,685
Long-term portion $ 37,886,428 $ 30,222,221
</TABLE>
Interest rates on the borrowings under lines of credit are negotiable. At
February 3, 1996 and January 28, 1995, interest rates on these borrowings
averaged 6.7% and 7.0%, respectively.
Land and buildings with net book values of approximately $2,140,000 and
$2,219,000 at February 3, 1996 and January 28, 1995, respectively, were pledged
as collateral to the mortgage notes. Furniture, fixtures, and equipment with a
net book value of approximately $1,528,000 at February 3, 1996 was pledged as
collateral on the note payable having a balance of $1,493,390 as of February 3,
1996.
Short-term borrowings and long-term debt at February 3, 1996 matures as follows:
<TABLE>
Amount
<C> <C>
Year ending:
1997 $ 2,810,654
1998 35,624,713
1999 369,438
2000 404,474
2001 442,887
Thereafter 1,044,916
Total $ 40,697,082
</TABLE>
ZCMI had unused lines of credit available with various banks totaling
approximately $15,700,000 at February 3, 1996. 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 February 3, 1996 amounted to approximately $338,000.
<PAGE>
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:
Year Ended
1996 1995 1994
Options outstanding - beginning of year 18,900 19,900 29,800
Granted None None None
Exercised None None None
Forfeited (13,900) (1,000) (9,900)
Options outstanding - end of year 5,000 18,900 19,900
Options exercisable 5,000 18,900 19,900
Price range of outstanding options $16.50 $14.00 $14.00
to to
$16.50 $16.50
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 February 3, 1996,
January 28, 1995, and January 29, 1994 were as follows:
<TABLE>
Year Ended
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits earned during year $ 445,000 $ 562,000 $ 456,000
Interest cost on projected benefit
obligation 1,975,000 1,876,000 1,832,000
Actual return on plan assets (3,522,000) (596,000) (1,723,000)
Net amortization and deferral 1,500,000 (1,205,000) (247,000)
Net periodic pension cost $ 398,000 $ 637,000 $ 318,000
</TABLE>
Actuarial assumptions used at January 1, 1995, 1994, and 1993 to compute the
above information were:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Weighted average discount rate 9.0% 8.0% 9.0%
Rate of increase in compensation levels 4.0% 4.0% 6.0%
Expected long-term rate of return on assets 9.5% 9.5% 9.5%
</TABLE>
<PAGE>
The following table sets forth the funded status and amounts recognized in
ZCMI's balance sheets at February 3, 1996 and January 28, 1995, respectively,
as of the actuarial valuation dates shown:
<TABLE>
January 1,
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(24,889,000) $ (21,265,000)
Accumulated benefit obligation $(25,200,000) $ (21,445,000)
Projected benefit obligation $(26,025,000) $ (22,145,000)
Plan assets at fair value 23,575,000 19,417,000
Plan assets less than projected benefit
obligation (2,450,000) (2,728,000)
Unrecognized prior service costs (286,000) (375,000)
Unrecognized net loss 5,092,000 3,667,000
Unrecognized net obligation at February 1, 1986
being recognized over 15 years (927,000) (1,112,000)
Additional liability for unfunded accumulated
benefit obligation (3,054,000)
Pension liability recognized in the balance
sheet $ (1,625,000) $ (548,000)
</TABLE>
Actuarial assumptions used at January 1, 1996 and 1995 to compute the above
information were:
<TABLE>
1996 1995
<S> <C> <C>
Weighted average discount rate 7.75 % 9.0 %
Rate of increase in compensation levels 4.00 % 4.0 %
</TABLE>
During the year ended February 3, 1996, ZCMI recognized the additional minimum
liability aspects of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" (SFAS No. 87). SFAS No. 87 requires the
recognition of an additional pension liability in the amount of the unfunded
accumulated benefit obligation in excess of accrued pension liability with an
equal amount to be recognized as either an intangible asset or a reduction of
equity. Based upon plan actuarial and asset information as of February 3, 1996,
ZCMI recorded an increase to the pension liability of $3,054,000 and a decrease
to stockholders' equity of $1,908,750 ($3,054,000 less applicable deferred tax
asset of $1,145,250 related to the additional pension expense recognized for
financial statement purposes).
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 February 3, 1996, Jan. 28, 1995, and January
29, 1994 were approximately $204,000, $199,000, and $195,000, 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
plan for up to 100% of the employer matching contributions made to the plan for
any period. As of February 3, 1996, no shares have been contributed to this
plan.
7. RELATED PARTY TRANSACTIONS
ZCMI's Downtown Store and Service Center, with net book values of
approximately $7,922,000 and $8,316,000 at February 3, 1996 and January 28,
1995, respectively, are leased from a major stockholder under capital leases.
Included in obligations under capital leases are approximately $13,988,000 and
$14,185,000 at February 3, 1996 and January 28, 1995, respectively, pertaining
to these leases. Lease payments of approximately $1,906,000, $1,906,000, and
$1,908,000 were made on these leases for the years ended February 3, 1996,
January 28, 1995, and January 29, 1994, respectively. Included in costs and
expenses are transactions with companies in which a major ZCMI stockholder has
a significant interest totaling approximately $2,984,000, $3,156,000, and
$2,806,000 for the years ended February 3, 1996, January 28, 1995, and January
29, 1994, respectively. Included in net sales are transactions with major
ZCMI stockholders totaling approximately $289,000, $351,000, and $409,000 for
the years ended February 3, 1996, January 28, 1995, and January 29, 1994,
respectively.
8. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of". This statement addresses the accounting for the
impairment of long-lived assets, such as premises, furniture and equipment,
certain identifiable intangible and goodwill related to those assets.
Long-lived assets and certain identifiable intangibles are to be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss is
recognized when the sum of the future cash flows (undiscounted and without
interest charges expected from the use of the asset and its eventual
disposition) is less than the carrying amount of the asset. The statement
also requires that long-lived assets and identifiable intangibles, except for
assets of a discontinued operation held for disposal, be accounted for at the
lower of cost or fair value less cost to sell. SFAS No. 121 is effective for
fiscal years beginning after December 15, 1995. The impact of SFAS No. 121 on
ZCMI is not expected to be material in relation to the financial statements.
In October 1995, the Financial Accounting standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". SFAS No. 123 defines a fair value
based method of accounting for an employee stock option. Fair value of the
stock option is determined considering factors such as the exercise price, the
expected life of the option, the current price of the underlying stock and its
volatility, expected dividends on the stock, and the risk-free interest rate
for the expected term of the option. Under the fair value based method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period. A company may elect to adopt
SFAS No. 123 or elect to continue accounting for its stock option or similar
equity awards using the intrinsic method, where compensation cost is measured
at the date of grant based on the excess of the market value of the underlying
stock over the exercise price. If a company elects not to adopt SFAS No. 123,
then it must provide pro forma disclosure of net income and earnings per
share, as if the fair value based method had been applied.
SFAS No. 123 is effective for transactions entered into for fiscal years that
begin after December 15, 1995. Pro forma disclosures for entities that elect
to continue to measure compensation cost under the old method must include the
effects of all awards granted in fiscal years that begin after December 15,
1994. It is currently anticipated that ZCMI will continue to account for
stock-based compensation plans under the intrinsic method (Accounting
Principles Board Opinion No. 25) and, therefore, SFAS No. 123 will have no
effect on ZCMI's financial statements.
