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 1, 1997
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
1, 1997 (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 and in St. George, Utah.
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.
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 16,600 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 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 three 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. The store was partially remodeled in the
year ended February 1, 1997. 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, 1998.
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 1, 1997.
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
D 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 past two years. The stock is
traded on the over-the-counter market in Salt Lake City and is quoted in the
local newspapers.
<TABLE>
Year Ended
Quarter 1997 1996
<C> <C> <C>
1 $11.50 - $12.50 $ 9.75 - $ 9.87
2 $11.50 - $12.50 $10.75 - $12.25
3 $11.25 - $12.00 $11.88 - $12.11
4 $11.75 - $12.50 $10.50 - $11.50
</TABLE>
The approximate number of stockholders at April 15, 1997 was 1,725.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data
(Dollars in thousands except per share amounts
<TABLE>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales & Other Income $259,599 $254,371 $244,924 $235,319 $221,830
Net Income 1,838 582 3,624 3,153 291
Total Assets 137,618 136,505 144,630 135,947 128,635
Long-Term Debt 42,955 56,406 50,974 40,368 47,214
Per Share Amounts:
Earnings 0.84 0.27 1.69 1.46 0.13
Cash Dividends Declared 0.60 0.60 0.60 0.60 0.60
Book Value 23.92 23.64 24.91 23.92 22.92
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Management's Discussion and Analysis of Operations
Overview of 1996
ZCMI realized consistent sales increases in a steadily slowing local economy
and, coupled with tight control of expenses and costs, managed a solid
profitabilty. As shown below, total sales increased 1.9% for the year ended
February 1, 1997, compared to a 3.8% increase for fiscal 1995 and a 4.1 %
increase for fiscal 1994. Comparable store locations which were open for the
full fiscal year in the three comparable years had overall sales increases of
2.3% for the year ended February 1, 1997 compared to 4.0% for fiscal 1995 and
4.3% for fiscal 1994. Sales increases were achieved as markets in Womens
Ready to Wear departments nationally and locally continued revivals to previous
levels. Markets continued to be consistent in Home Furnishings and Smallwares
departments, while heavy competition from liquidations and other outlets
contributed to steep declines in Electronics and moderate increases in
Furniture areas.
<TABLE>
Sales
Fiscal Year: 1996 1995 1994
<S> <C> <C> <C>
Total sales $251,180,200 246,436,800 $237,357,400
Comp. store sales 251,180,200 245,652,000 236,092,200
Other Income 8,419,260 7,934,500 7,566,190
Net Income 1,837,626 581,640 3,624,251
Total Sales % increase 1.9% 3.8% 4.1%
Comp. store sales % increase 2.3 4.0 4.3
Other Inc. % increase 6.1 4.9 3.5
Net Income per share $0.84 $0.27 $1.69
</TABLE>
Other income has increased by 6.1% for the year ended February 1, 1997 as
compared to an increase of 4.9% increase in fiscal 1995. Other income is
primarily interest income from customer accounts and amortization of deferred
gross profit from the sales of furniture, fixtures, and equipment. Interest
income has been decreasing slightly 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 2.7%
during the year ended February 1, 1997 after decreasing 2.0% 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. Amortization of deferred
gross profit into income increased during the fiscal year ended February 1, 1997
as a result of further asset leasing creating deferred gross profit to be
amortized. Net Income increased as a result of Other Income and other items
covered in the analysis of operations below.
Analysis of Credit Balances
<TABLE>
Fiscal Year: 1996 1995 1994
<S> <C> <C> <C>
Average Monthly Collection Percent 21.97 21.71% 20.89%
Annual Turnover 2.6366 2.6052 2.5068
</TABLE>
The collection rate has increased from 20.89% in fiscal 1994 to 21.97% in fiscal
1996 and the annual turnover has increased from 2.51 in fiscal 1994 to 2.64 in
fiscal 1996. This increase in collections resulted in part from the fact that
ZCMI extended the terms on Club Plan purchases from 12 months to 24 mo. 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
increase in fiscal 1995 and 1996 in collections reflect a return to a more
normal distribution of deferred payment promotions to regular option account
sales.
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 E.
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 stores are planned for closing or opening during the current fiscal
year.
Retailing in general continues to undergo dynamic change as retailers deal with
problems caused by over-storing in the East Coast and West Coast real estate
markets. The retailing industry is also affected by continuing consolidation
among retailers to provide more efficient, mass merchandising operations. Sales
continue to struggle in retail markets on the East Coast and West Coast, with
markets in growth areas in the Rockies, Midwest and South showing steady
economic gains. Divisionally, Ready to Wear merchandise showed strong market
growth as new lines have made significant impacts, while Junior Ready to Wear
and Men's continued level sales during fiscal year 1996. Hard lines divisions
continued steady sales gains, while Electronics and Home Office areas were
substantially lower in sales as competition from liquidating retailers and off
price discounters presented significant barriers to growth. The market areas
for ZCMI, although the economy is slowing somewhat, continue an outlook for good
economic conditions. This is true 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, 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 decreased to 68.9% of sales during the year
ended February 1, 1997 as depicted in the chart below. This percentage
compares with 69.5% during fiscal 1995 and 68.1% during fiscal 1994.
<TABLE>
Fiscal Year 1996 1995 1994
<S> <C> <C> <C>
Cost of Merchandise Sold $172,950,259 $171,161,111 $161,672,320
Costs as a percent of sales 68.9% 69.5% 68.1%
</TABLE>
The decrease in Costs of Merchandise Sold results from decreases in purchase
costs from vendors, and shrinkage. These changes are summarized in the table
presented below:
Cost of Merchandise Sold Factors
<TABLE>
Fiscal Year: 1996 1995 1994
<S> <C> <C> <C>
Cost purchases percent 55.3 55.7% 55.1%
Markdowns (costed) 11.0 11.0 10.7
Shrinkage (costed) 0.7 0.9 0.3
Discounts on invoices (1.4) (1.4) (1.4)
Workroom Costs 1.3 1.3 1.3
Other buying costs 2.0 2.0 2.1
Total costs of merchandise sold 68.9% 69.5% 68.1%
</TABLE>
Comparisons between the fiscal periods noted above are affected by several
trends. The decrease in the costs of purchases represents a continuing effort
to provide resources from value conscious manufacturers. The calculation of
LIFO inventories also will affect the cost of merchandise sold. This calculation
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, a change of $1.4 million.
LIFO charges to inventory during fiscal 1996 were only $96,863. Markdowns have
continued during fiscal 1996 from continuing competition in Junior Ready to Wear
areas and Electronics as previously discussed. Markdowns were high 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 during fiscal 1995. Shrinkage
decreased as new UPC code systems were streamlined allowing more accurate
recognition of markdowns. Lastly, buying costs continue to decline as a result
of streamlining the buying function and as more efficient merchandising
programs are implemented.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As shown in the chart below, selling, general and administrative expenses
increased slightly to 30.7% as a percent to sales and other income during the
year ended February 1, 1997. This compares to 30.4% in fiscal 1995 and 30.5% in
fiscal 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. Also contributing to this increase are changes in
payroll due both to legislation on minimum wage taking effect and pressures from
competition for labor force in the prime market areas of ZCMI.
Selling, General and Administrative Expenses
<TABLE>
Fiscal Year 1996 1995 1994
Selling, general and
<S> <C> <C> <C>
administrative expenses $79,713,352 $77,417,255 $74,782,477
Expenses as a percent to
sales and other income 30.7% 30.4% 30.5%
Percent increase 3.0 3.5 7.1
</TABLE>
Bad debt expense increased as bankruptcies among proprietary card customers
continued to climb. This increase was offset by decreases in pension expense
due to asset valuation increases in the stock market and in insurance expenses
for group insurance plans.
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, 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.
While short-term loan rates have increased slightly, the expected dollar level
of debt financing remains such that Managment considers short-term borrowing to
be the best strategy to meet 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 1, 1997 after
amortization, depreciation, and other non-cash adjustments, provided more cash
than was used. Major areas of cash were provided from increases in Accounts
Payable - Trade; Accrued Liabilities including Sales, Payroll, and Other Taxes
Payable, Salaries and Commissions Payable, and Gift Certificates Outstanding;
Reductions in Prepaid Expenses and in Accounts Receivable customer balances.
Cash was used in operating activities mainly by increasing merchandise
inventories. Inventory increased generally evenly across all divisions of the
company with the exception of reduction of inventory levels in Electronics.
Net cash from investing activities in the year ended February 1, 1997 used more
cash than was provided Cash was provided from the proceeds of the sale of
property, plant and equipment which was subsequently leased back. Cash was used
to purchase property, plant and equipment used primarily in the remodeling of
the ZCMI South Towne Mall store. The categories of capital expenditures are
summarized below:
Capital Expenditures
<TABLE>
Fiscal Year: 1996 1995 1994
<S> <C> <C> <C>
Furniture, fixtures and equipment $3,887,631 $2,423,607 $ 2,048,757
Store remodeling and improvement 1,360,802 2,034,137 9,088,400
Total Capital Expenditures 5,248,433 4,457,744 11,137,157
Property under capital lease 1,162,097
Total Additions $5,248,433 $4,457,744 $12,299,254
</TABLE>
Capital expenditures during the year ended February 1, 1997 consisted of the
completion of a major remodeling project on the second floor of the South Towne
Mall store. A reengineering of the advertising area was completed, at which
time the computer equipment, together with upgraded computer equipment in the
buying area, were sold and leased back. The furniture delivery truck fleet
was replaced with newer vehicles and the merchandising software project was
completed.
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 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.
Future estimated capital expenditures include normal equipment replacement
estimated at $500,000 and the completion of a 40,000 square foot expansion of
the Layton Hills Mall Store estimated to cost approximately $3,000,000. 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.
Unsecured Lines of Credit
<TABLE>
Year ended:
Fiscal Year: 1996 1995 1994
<S> <C> <C> <C>
Used lines of credit $34,000,000 $37,800,873 $40,307,777
Unused lines of credit 26,000,000 15,699,127 8,692,223
Total $60,000,000 $53,500,000 $49,000,000
</TABLE>
Net cash used in financing activities in the year ended February 1, 1997 used
more cash than was provided. Cash was provided by the sale of ZCMI capital
stock to the employee 401K plan. Cash was used to decrease Lines of Credit
loans, reduce principal balances on a mortgage and a long-term note payable, to
pay dividends, and for principal payments made on obligations under capital
leases.
As a result of the above, there was a decrease in cash and cash equivalents
during the year ended February 1, 1997.
Financial Ratios
Liquidity and capital resources can be measured by the following ratios:
Ratios
<TABLE>
Fiscal Year: 1996 1995 1994
<S> <C> <C> <C>
Cash and short-term investments $ 1,467,308 $ 2,698,087 $ 2,698,893
Net accounts receivable 50,573,755 50,721,239 54,678,782
Total 52,041,063 53,419,326 57,377,675
Total current assets 103,693,709 102,633,186 105,840,299
Total current liabilities 37,797,651 24,856,073 35,646,878
Quick ratio 1.38 2.15 1.61
Current ratio 2.74 4.13 2.97
Long term debt 45,159,529 59,008,257 52,909,621
Stockholders equity 51,775,920 51,062,144 53,570,680
Total capitalization $96,935,449 $110,070,401 106,480,301
LT Debt to Equity Ratio 87.2% 115.6% 98.8%
LT Debt to Capitalization Ratio 46.6% 53.6% 49.7%
Return on Equity 3.6 1.1% 6.8%
</TABLE>
As indicated in the table above, the quick ratio has decreased from 2.15 times
in the year ended February 1, 1997 to 1.38 times in the year ended February 1,
1997. This is a result of a transfer of borrowings from long term to short
term, pending final approval by banks which would again classify the borrowings
as long term. In general, short term borrowings have been decreased by
switching to longer term borrowings, for reasons stated above. The current ratio
also decreased from 4.13 times in the year ended February 3, 1996 to 2.74 times
in the year ended February 1, 1997, for much the same reasons as previously
noted. As a result of the shift to long term borrowing, both the debt to equity
ratio and the debt to capitalization ratio generally increase, although this
year the transfer has caused a decrease. 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 45.7%.
Likewise, if the pension liability adjustment was not included in the LT Debt to
Equity ratio, that ratio would be 84.3%.
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 1, 1997 was 0.9% compared to a
increase of 0.7% in fiscal 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
1, 1997 was $96,863, compared to a charge to cost of merchandise sold of
$608,153 in fiscal 1995 and a credit to cost of merchandise sold of $804,951
in fiscal 1994.
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 1, 1997. 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 February, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
" Earnings per Share". This pronouncement establishes standards for computing
and presenting earnings per share (EPS). SFAS No. 128 simplifies the approach
for computing earnings per share previously found in Accounting Principles Board
(APB) Opinion No. 15. A full explanation of the differences in methodology is
contained in the footnote no. 8 of the Notes to Financial Statements. SFAS No.
128 is effective for financial staements issued for periods ending after
December 15, 1997. This pronouncement is not expected to materially affect
ZCMI.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information for response to the financial statements portion of this item is
contained in 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 1, 1997. 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 1997 Proxy Statement
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information for response to this item is contained in the 1997 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 1997 Proxy Statement
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information for response to this item is contained in the 1997 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 1, 1997 and February 3, 1996 *
Statements of Income for the Years Ended February 1, 1997,
February 3, 1996, and January 28, 1995 *
Statements of Stockholders' Equity for the Years Ended
February 1, 1997, February 3, 1996, and January 28, 1995 *
Statements of Cash Flows for the Years Ended
February 1, 1997, February 3, 1996, and January 28, 1995 *
Notes to Financial Statements *
Financial statement schedules 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 Exhibit 13 attached to this Form 10-K
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 Refer to Annual Report to
per share earnings Stockholders for the period
ended February 1, 1997
incorporated herein
by reference
(12) Statements regarding computation of
ratios Not applicable
(13) Annual report to stockholders Filed attached
(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
<PAGE>
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) EXECUTIVE V.P. - CFO
Date , 1997
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) President and Director
(Date) , 1997
(Signature and Title) Executive V.P., CFO, and
Director
(Date) , 1997
(Signature and Title) Vice President and Director
(Date) , 1997
(Signature and Title) Director
(Date) , 1997
(Signature and Title) Director
(Date) , 1997
(Signature and Title) Director
(Date) , 1997
<PAGE>
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 report
dated April 11, 1997, appearing in and incorporated by reference in the Annual
Report on Form 10-K of Zions Cooperative Mercantile Institution for the year
ended February 1, 1997.
Salt Lake City, Utah
April 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 1,467,308
<SECURITIES> 0
<RECEIVABLES> 51,907,909
<ALLOWANCES> 1,334,154
<INVENTORY> 49,061,807
<CURRENT-ASSETS> 103,693,709
<PP&E> 64,938,787
<DEPRECIATION> 31,835,765
<TOTAL-ASSETS> 137,618,404
<CURRENT-LIABILITIES> 37,797,651
<BONDS> 26,246,034
0
0
<COMMON> 14,818,377
<OTHER-SE> 36,957,543
<TOTAL-LIABILITY-AND-EQUITY> 137,618,404
<SALES> 251,180,200
<TOTAL-REVENUES> 259,599,460
<CGS> 172,950,259
<TOTAL-COSTS> 251,528,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,135,260
<INTEREST-EXPENSE> 4,414,567
<INCOME-PRETAX> 2,521,282
<INCOME-TAX> 683,656
<INCOME-CONTINUING> 683,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 683,656
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
</TABLE>
ZIONS COOPERATIVE
MERCANTILE INSTITUTION
Financial Statements as of February 1, 1997 and February 3, 1996 and for Each of
the Three Years in the Period Ended February 1, 1997 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 February 1, 1997 and February 3, 1996, and the related
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended February 1, 1997. 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 1, 1997 and February 3,
1996, and the results of its operations and its cash flows for each of the three
years in the period ended February 1, 1997 in conformity with generally accepted
accounting principles.
April 11, 1997
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEETS AS OF FEBRUARY 1, 1997 AND FEBRUARY 3, 1996
<TABLE>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 1,467,308 $ 2,698,087
Accounts receivable (less allowance for doubtful
accounts of $1,334,154 and $1,307,360,
respectively) 50,573,755 50,721,239
Inventories 49,061,807 45,877,368
Prepaid expenses 1,107,448 1,320,685
Deferred income taxes (Notes 3 and 6) 1,483,391 2,015,807
Total current assets 103,693,709 102,633,186
PROPERTY, PLANT, AND EQUIPMENT (Notes 2, 4 and 7):
Land 177,058 177,058
Buildings and improvements 4,253,922 4,241,162
Leasehold improvements 15,468,375 14,634,910
Furniture, fixtures, and equipment 12,992,530 9,520,103
Leased property under capital leases 31,364,742 31,364,742
Construction in progress 682,160 1,110,448
Total 64,938,787 61,048,423
Less accumulated depreciation and
amortization 31,835,765 27,774,562
Property, plant, and equipment - net 33,103,022 33,273,861
DEFERRED INCOME TAXES 196,135
OTHER ASSETS 625,538 597,899
TOTAL $ 137,618,404 $ 136,504,946
</TABLE>
See notes to financial statements. (Continued)
ZIONS COOPERATIVE MERCANTILE INSTITUTION
BALANCE SHEETS AS OF FEBRUARY 1, 1997 AND FEBRUARY 3, 1996
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 9,269,359 $ 7,370,076
Short-term borrowings - banks (Note 4) 10,000,000 2,500,000
Current portion of long-term debt (Note 4) 340,041 310,654
Current portion of obligations under
capital leases (Notes 2 and 7) 1,864,206 2,291,330
Accrued liabilities:
Salaries and commissions 2,071,931 1,705,579
Sales, payroll, and other taxes 3,575,688 1,391,011
Income taxes payable (Note 3) 1,284,563 400,000
Outstanding gift certificates 1,934,568 1,611,472
Pension liability (Note 6) 1,528,987 1,625,000
Other 4,004,320 4,042,815
Deferred gain on sale and leaseback (Note 2) 1,923,988 1,608,136
Total current liabilities 37,797,651 24,856,073
LONG-TERM DEBT (Note 4) 26,246,034 37,886,428
DEFERRED INCOME TAXES (Note 3) 682,863
LONG-TERM DEFERRED GAIN ON SALE AND
LEASEBACK (Note 2) 5,089,551 3,497,593
OBLIGATIONS UNDER CAPITAL LEASES
(Notes 2 and 7) 16,709,248 18,519,845
TOTAL LIABILITIES 85,842,484 85,442,802
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY (Note 5):
Capital stock - par value $.001; 5,000,000 shares authorized;
2,164,483 and 2,159,745 shares issued at February 1,
1997 and February 1, 1996, respectively 2,164 2,160
Paid-in capital 14,816,213 14,729,203
Pension liability adjustment (Note 6) (1,806,875) (1,908,750)
Retained earnings 38,764,418 38,239,531
Stockholders' equity - net 51,775,920 51,062,144
TOTAL $137,618,404 $136,504,946
</TABLE>
See notes to financial statements. (Concluded)
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996, AND JANUARY 28, 1995
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
NET SALES AND OTHER INCOME
(Notes 2 and 7) $259,599,460 $254,371,323 $244,923,590
COSTS AND EXPENSES (Note 7):
Cost of merchandise sold 172,950,259 171,161,111 161,672,320
Selling, general, and administrative expenses
(Notes 2 and 6) 79,713,352 77,417,255 74,782,477
Interest expense:
Borrowings (Note 4) 2,495,892 2,938,466 2,088,029
Capital leases (Note 2) 1,918,675 2,072,060 2,087,194
Total costs and expenses 257,078,178 253,588,892 240,630,020
INCOME FROM OPERATIONS 2,521,282 782,431 4,293,570
GAIN ON SALE OF STORE 1,373,658
INCOME BEFORE INCOME TAX
EXPENSE 2,521,282 782,431 5,667,228
INCOME TAX EXPENSE (Note 3) 683,656 200,791 2,042,977
NET INCOME $ 1,837,626 $ 581,640 $ 3,624,251
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.84 $ 0.27 $ 1.69
</TABLE>
See notes to financial statements.
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996, AND JANUARY 28, 1995
<TABLE>
Pension
Capital Stock Paid-in Treasury Stock Liability Retained
Shares Amount Capital Shares Amount Adjustment Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 30, 1994
2,135,776 $2,136 $14,477,678 NONE NONE NONE $36,612,953
Purchases of treasury stock 1,500 14,202
Issuance of capital stock (net of
1,500 shares of treasury stock)
14,546 14 140,801 (1,500) (14,202)
Net income 3,624,251
Cash dividends ($.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(net of
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
Purchases of treasury stock 6,726 79,816
Issuance of capital stock(net of
6,726 shares of treasury stock)
4,738 4 87,010 (6,726) (79,816)
Pension liability adjustment (Note 6) 101,875
Net income 1,837,626
Cash dividends ($.60 a share) (1,312,739)
BALANCE, FEBRUARY 1, 1997
2,164,483 $2,164 $14,816,213 NONE NONE $(1,806,875) $38,764,418
</TABLE>
See notes to financial statements.
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996, AND JANUARY 28, 1995
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,837,626 $ 581,640 $3,624,251
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,198,197 4,457,778 3,969,509
Deferred income taxes (346,582) (199,209) 606,194
Amortization of deferred gain
on sale and leaseback (1,697,217) (1,302,992) (1,186,055)
Gain on sale of store (1,373,658)
Change in operating assets and liabilities:
Accounts receivable 147,484 3,957,543 (2,057,515)
Inventories (3,184,439) 534,626 (7,400,264)
Prepaid expenses 213,237 (560,145) 76,598
Other assets (27,639) 45,426
Accounts payable - trade 1,899,283 722,576 1,084,972
Accrued liabilities 3,726,055 (6,620,863) (1,264,068)
Net cash provided by (used in) operating activities
6,766,005 1,570,954 (3,874,610)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment
(5,242,358) (2,528,970) (6,527,906)
Proceeds from sale of property, plant, and equipment
4,820,027 5,040,000 3,900,000
Net cash provided by (used in) investing activities
(422,331) 2,511,030 (2,627,906)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term
borrowings (2,500,000) (9,000,000) (4,500,000)
Proceeds from long-term debt 8,093,095 12,807,776
Principal payments on long-term
debt (1,611,007) (263,919) (1,705,379)
Principal payments on obligations
under capital leases (2,237,721) (1,730,540) (1,570,136)
Proceeds from sale of capital
stock 166,830 164,769 155,017
Purchase of treasury stock (79,816) (54,035) (14,202)
Cash dividends (1,312,739) (1,292,160) (1,287,153)
Net cash provided by (used in) financing activities
(7,574,453) (4,082,790) 3,885,923
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,230,779) (806) (2,616,593)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,698,087 2,698,893 5,315,486
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 1,467,308 $ 2,698,087 $2,698,893
</TABLE>
(continued)
ZIONS COOPERATIVE MERCANTILE INSTITUTION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996, AND JANUARY 28, 1995
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid during the year for:
Interest $4,434,585 $5,077,498 $3,949,228
Income taxes 145,676 1,468,899 1,347,116
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 3,605,000 2,050,948 1,665,298
Transfer from long-term debt to short-term
borrowings - banks 10,000,000
Increase (decrease) in accrued liabilities and
corresponding decrease (increase) in stockholders'
equity due to pension liability adjustment (Note 6)
163,000 3,054,000
Decrease (increase) in deferred tax assets and
corresponding increase (decrease) in stockholders'
equity due to pension liability adjustment (Note 6)
(61,125)(1,145,250)
</TABLE>
See notes to financial statements. (Concluded)
<PAGE>
ZIONS COOPERATIVE MERCANTILE INSTITUTION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED FEBRUARY 1, 1997
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 $6,600,000 and $6,500,000 higher at Feb.
1, 1997 and February 3, 1996, 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 $22,914,000, $21,690,000, and $20,423,000
for the years ended February 1, 1997, February 3, 1996, and January 28, 1995,
respectively. Included in net sales are finance charges on retail credit
accounts receivable totaling approx. $5,653,000, $5,716,000, and $5,830,000
for the years ended February 1, 1997, February 3, 1996, and January 28, 1995,
respectively. Net sales and other income also include the amortization of
deferred gain on sale and leaseback totaling approximately $1,697,000,
$1,303,000, and $1,186,000 for the years ended February 1, 1997, February 3,
1996, and January 28, 1995, 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 Common and Common Equivalent Share - Net income per common and
common equivalent share is based on weighted average shares outstanding for the
years ended February 3, 1996 and January 28, 1995. For the year ended February
1, 1997, the computation includes common stock equivalents which assumes the
exercise of options or grants of unvested shares of common stock granted under
employee benefit plans (see Note 5). This computation resulted in assumed
weighted average shares outstanding of 2,189,232 for the year ended February 1,
1997, 2,153,600 for the year ended February 3, 1996, and 2,148,202 for the year
ended January 28, 1995. Stock options were excluded from the computation of per
share amounts for the years ended February 3, 1996 and January 28, 1995 because
they were antidilutive or because the dilutive effect was not material.
Statements of Cash Flows - For purposes of the statements of cash flows, ZCMI
considers short-term investments with original maturities of three months or
less, to be cash equivalents.
Fiscal Year - ZCMI's fiscal year ends 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 as of February 1, 1997 and
February 3, 1996 is as follows (see Note 7):
<TABLE>
1997 1996
<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 20,148,406 18,114,174
Net assets under capital leases $11,216,336 $13,250,568
</TABLE>
Approximate future minimum lease payments on both capital and noncancelable
operating leases at February 1, 1997 were as follows:
<TABLE>
Capital Operating
Leases Leases
<S> <C> <C>
Year ending:
1998 $ 3,589,001 $ 9,872,589
1999 3,090,501 9,720,054
2000 2,843,177 9,246,832
2001 2,104,778 9,233,927
2002 1,711,840 6,715,461
Later years 23,336,084 26,636,755
Total minimum lease payments 36,675,381 $71,425,618
Less amount representing interest 18,101,927
Present value of net minimum lease payments 18,573,454
Less current portion 1,864,206
Long-term portion $16,709,248
</TABLE>
Approximate total operating lease expense was as follows:
<TABLE>
Year Ended
1997 1996 1995
<S> <C> <C> <C>
Minimum rentals on noncancelable
operating leases $9,520,162 $8,773,000 $8,025,000
Contingent rentals on noncancelable
operating leases 91,000 99,000 55,000
Other operating lease expenses 139,000 696,000 700,000
Total $9,750,162 $9,568,000 $8,780,000
</TABLE>
Contingent rentals on capital leases, which were included in expense, totaled
approximately $274,000, $251,000, and $251,000 for the years ended February 1,
1997, February 3, 1996, and January 28, 1995, respectively.
During the years ended February 1, 1997, February 3, 1996, and January 28, 1995,
ZCMI sold certain furniture, fixtures, and equipment with a net book value of
approximately $1,215,000, $2,989,000, and $35,000 for approximately $4,820,000,
$5,040,000, and $1,700,000, 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 1, 1997, February 3, 1996,
and January 28, 1995 of approximately $3,605,000, $2,051,000, and $1,665,000,
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
1, 1997, February 3, 1996, and January 28, 1995 totaled approx. $1,697,000,
$1,303,000, and $1,186,000, respectively.
3. INCOME TAXES
ZCMI has recorded current deferred tax assets and net long-term deferred tax
liabilities as of February 1, 1997 and February 3, 1996 as follows:
<TABLE>
1997 1996
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
Deferred tax assets $1,483,391 $ 2,630,077 $2,015,807 $2,902,983
Deferred tax liabilities (2,433,942) (3,585,846)
Total $1,483,391 $ 196,135 $2,015,807 $ (682,863)
</TABLE>
Deferred tax assets and liabilities as of February 1, 1997 and February 3, 1996
consisted of the following temporary differences and carryforward items:
<TABLE>
1997 1996
Assets Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable $ 500,307 $ 489,214
Deferred gross profit on sale
leaseback transactions $2,630,077 $ 1,914,648
Accrued vacation expense
not currently recognized
for income tax purposes 342,052 286,527
Pension liability adjustment 573,359 1,145,250
Net property, plant, and
equipment for tax in excess
of financial reporting 988,335
Other 67,673 94,816
Total $1,483,391 $2,630,077 $2,015,807 $ 2,902,983
Liabilities
Net property, plant, and
equipment for financial
reporting in excess of tax
basis $ (920,168)
Capital and operating leases
treated differently for
income tax purposes (1,513,774) $(3,585,846)
Total None $(2,433,942) None $(3,585,846)
</TABLE>
Computed "expected" income taxes on income for financial reporting purposes are
reconciled to income tax expense as follows:
<TABLE>
Year Ended
1997 1996 1995
<S> <C> <C> <C>
Federal income taxes at the statutory
rate $ 882,449 $ 274,327 $1,983,530
Increase (decrease) resulting from:
State income taxes 102,533 27,377 198,185
Other (301,326) (100,913) (138,738)
Income tax expense $ 683,656 $ 200,791 $2,042,977
Consisting of:
Current:
Federal $ 893,047 $ 357,280 $1,274,744
State 137,191 42,720 162,039
Total 1,030,238 400,000 1,436,783
Deferred:
Federal (311,924) (177,933) 541,453
State (34,658) (21,276) 64,741
Total (346,582) (199,209) 606,194
Total expense $ 683,656 $ 200,791 $2,042,977
</TABLE>
4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings and long-term debt consisted of the following at year end:
<TABLE>
1997 1996
<S> <C> <C>
Unsecured notes payable to banks under lines of credit,
due at various dates through June 1998 $34,000,000 $37,800,873
Mortgage note, 8%, due in monthly installments through
February 2003 1,245,044 1,402,819
Note payable, 10.255%, due in quarterly installments
through December 2002 1,341,031 1,493,390
Total 36,586,075 40,697,082
Less current portion 10,340,041 2,810,654
Long-term portion $26,246,034 $37,886,428
</TABLE>
Interest rates on the borrowings under lines of credit are negotiable. At
February 1, 1997 and February 3, 1996, interest rates on these borrowings
averaged 6.4% and 6.7%, respectively.
Land and buildings with net book values of approximately $2,062,000 and
$2,140,000 at February 1, 1997 and February 3, 1996, respectively, were pledged
as collateral to the mortgage notes. Furniture, fixtures, and equipment with a
net book value of approximately $1,353,060 at February 1, 1997 was pledged as
collateral on the note payable having a balance of $1,341,031 as of February 1,
1997.
Short-term borrowings and long-term debt at February 1, 1997 matures as follows:
<TABLE>
Amount
<S> <C>
Year ending:
1998 $10,340,041
1999 24,353,238
2000 404,474
2001 442,888
2002 484,999
Thereafter 560,435
Total $36,586,075
</TABLE>
ZCMI had unused lines of credit available with various banks totaling
approximately $26,000,000 at February 1, 1997. 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 $2,000,000. Open letters
of credit at February 1, 1997 amounted to approximately $1,331,975.
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 granted
under this incentive stock option plan and other related information are as
follows:
<TABLE>
Year Ended
1997 1996 1995
<S> <C> <C> <C>
Options outstanding - beginning of year 5,000 18,900 19,900
Granted None None None
Exercised None None None
Forfeited None (13,900) (1,000)
Options outstanding - end of year 5,000 5,000 18,900
Options exercisable 5,000 5,000 18,900
Price of outstanding options $16.50 $16.50 $14.00
to
$16.50
</TABLE>
During the year ended February 1, 1997, ZCMI instituted the Equity-Based
Incentive Plan under which options to purchase capital stock were granted at a
price not less than the fair market value on the date of the grant. Changes in
options granted under the plan and the fair market value of such options is as
follows:
<TABLE>
Number Exercise
of Shares Price
<S> <C> <C>
Outstanding - beginning of year None
Granted 124,000 $11.25
Canceled None
Exercised None
Outstanding - end of year 124,000 $11.25
Options exercisable None
Remaining contractual life 9.6 years
Fair market value of options granted $ 1.67
</TABLE>
ZCMI accounts for stock options granted using Accounting Principles Board
Opinion No. 25. Accordingly, no compensation cost has been recognized for its
fixed stock option plan. Had compensation cost for ZCMI's stock based
compensation plan been determined based on the fair value at the grant dates
for awards under those plans consistent with Statement of Financial Accounting
Standards (SFAS) No. 123, ZCMI's net income and net income per common and common
equivalent share would have changed to the pro forma amounts indicated below:
<TABLE>
Year Ended
February 1,
1997
<S> <C>
Net income:
As reported $1,837,626
Pro forma 1,824,564
Net income per common and common equivalent share:
As reported $0.84
Pro forma 0.83
</TABLE>
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 5.33%; expected volatility of
17.29%; risk-free interest rates ranging from 6.14% to 6.57%; and expected lives
ranging from 2.75 years to 10 years subsequent to vesting dates.
As part of the Equity Based Incentive Plan, restricted stock awards were granted
to certain officers of ZCMI. Under this grant, 46,000 non-vested restricted
stock awards were granted during the year ended February 1, 1997. The fair
market value of this grant was determined to be $517,500. The shares vest from
1999 through 2007 with the total compensation cost related to this grant to be
recognized from the date of grant through the final vesting date. During the
year ended February 1, 1997, ZCMI recorded $26,606 of compensation expense
related to this grant.
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 1, 1997,
February 3, 1996, and January 28, 1995 were as follows:
<TABLE>
Year Ended
1997 1996 1995
<S> <C> <C> <C>
Service cost - benefits earned during
year $ 567,000 $ 445,000 $ 562,000
Interest cost on projected benefit
obligation 2,017,000 1,975,000 1,876,000
Actual return on plan assets (1,834,000) (3,522,000) (596,000)
Net amortization and deferral (276,000) 1,500,000 (1,205,000)
Net periodic pension cost $ 474,000 $ 398,000 $ 637,000
</TABLE>
Actuarial assumptions used at January 1, 1996, 1995, and 1994 to compute the
above information were:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate 7.75% 9.0% 8.0%
Rate of increase in compensation levels 4.0% 4.0% 4.0%
Expected long-term rate of return on assets 9.5% 9.5% 9.5%
</TABLE>
The following table sets forth the funded status and amounts recognized in
ZCMI's balance sheets at February 1, 1997 and February 3, 1996, respectively,
as of the actuarial valuation dates shown:
<TABLE>
January 1,
1997 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(24,714,000) $(24,889,000)
Accumulated benefit obligation $(25,097,000) $(25,200,000)
Projected benefit obligation $(26,090,000) $(26,025,000)
Plan assets at fair value 23,568,000 23,575,000
Plan assets less than projected benefit
obligation (2,522,000) (2,450,000)
Unrecognized prior service costs (197,000) (286,000)
Unrecognized net loss 4,823,000 5,092,000
Unrecognized net obligation at February 1, 1986
being recognized over 15 years (742,000) (927,000)
Additional liability for unfunded accumulated
benefit obligation (2,891,000) (3,054,000)
Pension liability recognized in the balance
sheet $(1,529,000) $(1,625,000)
</TABLE>
Actuarial assumptions used at January 1, 1997 and 1996 to compute the above
information were:
<TABLE>
1997 1996
<S> <C> <C>
Weighted average discount rate 8.00% 7.75%
Rate of increase in compensation levels 4.00% 4.00%
</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 1, 1997, February 3, 1996, and Jan.
28, 1995 were approximately $214,000, $204,000, and $199,000, respectively.
Under the plan, employees are also given 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 1, 1997, 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
$7,529,000 and $7,922,000 at February 1, 1997 and Feb. 3, 1996, respectively,
are leased from a major stockholder under capital leases. Included in oblig.
under capital leases are approximately $13,768,000 and $13,988,000 at February
1, 1997 and February 3, 1996, respectively, pertaining to these leases. Lease
payments of approximately $1,906,000 were made on these leases for each of the
years ended February 1, 1997, February 3, 1996, and January 28, 1995. Included
in costs and expenses are transactions with companies in which a major ZCMI
stockholder has a significant interest totaling approximately $3,971,000,
$2,984,000, and $3,156,000 for the years ended February 1, 1997, February 3,
1996, and January 28, 1995, respectively. Included in net sales are transactions
with major ZCMI stockholders totaling approximately $350,000, $289,000, and
$351,000 for the years ended February 1, 1997, February 3, 1996, and January 28,
1995, respectively.
8. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share". This standard establishes standards for computing and
presenting earnings per share (EPS). SFAS No. 128 simplifies the approach for
computing earnings per share previously found in Accounting Principles Board
Opinion (APB) Opinion No. 15. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures.
Under the new statement, basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods with earlier application not
permitted. The computation of basic EPS under SFAS No. 128 would have resulted
in net income per common share of $.85, $.27, and $1.69 for the years ended
February 1, 1997, February 3, 1996, and January 28, 1995, respectively. Diluted
EPS computed under FASB No. 128 would have resulted in net income per common
share of $.84, $.27, and $1.69 for the years ended February 1, 1997, February 3,
1996, and January 28, 1995, respectively.
******
