SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 31, 1998
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 13, 1998, 2,152,087 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 13, 1998 of the voting stock held by
non-affiliates of the Registrant was $32,281,305.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The Registrant's Annual Report to Stockholders for the year ended
January 31, 1998 (Part II).
(2) The Registrant's 1998 Proxy Statement (Notice of Annual Meeting of
Shareholders to be held May 20, 1998) 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 on 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. The Registrant is one of the major tenants with full-line
stores in six suburban regional shopping centers in Utah and two
suburban regional shopping centers in Idaho.
(b) Not applicable as Registrant operates one line of business as previously
described.
(c) (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 1-3/4% 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 2,498 employees (full-time
equivalent), a decrease of 51 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 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 123,596 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. An additional 38,000
square feet was added on both levels during the year ended January 31,
1998. The operating lease expires May 31, 2015.
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 four 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, 1999.
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, 2003.
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, 1999.
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 January 31, 1998.
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 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 1998 1997
<S> <C> <C>
1 $12.50 - $12.63 $11.50 - $12.50
2 $12.50 - $13.25 $11.50 - $12.50
3 $13.25 - $14.63 $11.25 - $12.00
4 $14.50 - $14.50 $11.75 - $12.50
</TABLE>
The approximate number of stockholders at April 15,1998 was 1,575.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data
(Dollars in thousands except per share amounts
<TABLE>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Sales & Other Income $257,474 $259,599 $254,371 $244,924 $235,319
Net Income 209 1,838 582 3,624 3,153
Total Assets 139,039 137,618 136,505 144,630 135,947
Long-Term Debt 57,057 42,955 56,406 50,974 40,368
Per Share Amounts:
Earnings 0.09 0.84 0.27 1.69 1.46
Cash Dividends Declared 0.63 0.60 0.60 0.60 0.60
Book Value 23.24 23.92 23.64 24.91 23.92
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Overview of 1997
Construction for 10 months in front of the flagship ZCMI store, as well as
continuing construction on the main interstate freeway in Salt Lake City
contributed to a lackluster sales year. However, as a result of expense
control, and despite an increase in the minimum wage, ZCMI still managed to
attain a profit in a tough retailing market. As shown below, total sales
decreased 0.9% for fiscal 1997, compared to a 1.9% increase for fiscal 1996
and a 3.8 % increase for fiscal 1995. Store locations which were open for the
full fiscal year in the three comparable fiscal years had an overall sales
decrease of 0.9% for fiscal 1997 compared to sales increases of 2.3% for
fiscal 1996 and 4.1% for fiscal 1995. Slight sales increases were recorded in
Ready to Wear, Junior Ready to Wear, Fashion Accessories, and Men's Divisions,
while sales did not keep pace with last year in the Home Furnishings,
Smallwares, and Decorative Home divisions. These increases and decreases in
sales were also impacted by competition from variety stores opening in major
markets of the company.
<TABLE>
Sales
Fiscal Year: 1997 1996 1995
<S> <C> <C> <C>
Total sales $248,828,800 251,180,200 $246,436,800
Comp. store sales 248,828,800 251,180,800 245,652,000
Other Income 8,645,431 8,419,260 7,934,500
Net Income 209,410 1,837,626 581,640
Total Sales % increase (0.9)% 1.9% 3.8%
Comp. store sales % increase (0.9) 2.3 4.1
Other Inc. % increase 2.7 6.1 4.9
Earnings per common share $0.09 $0.84 $0.27
</TABLE>
Other income has increased by 2.7% for fiscal 1997 as compared to an increase
of 6.1% in fiscal 1996 and 4.9% 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, in the past, decreasing slightly as a result of continuing consumer
usage of third party credit, such as Visa and Mastercard. This trend was
reversed to some degree as ZCMI increased the interest rate on outstanding
account balances to 21% from the previous 18% and began to charge fees for
credit problems. This change was effective beginning on cycle balances in
September, 1997 and resulted in an increase in interest income of 3.1% during
fiscal 1997 after decreasing 2.7% 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 slightly during the fiscal year 1997 as a result of further
asset leasing. Net Income decreased because sales decreased, and expenses
increased, as well as other items covered in the analysis of operations below.
Analysis of Credit Balances
<TABLE>
Fiscal Year: 1997 1996 1995
<S> <C> <C> <C>
Average Monthly Collection Percent 21.79% 21.97% 21.71%
Annual Turnover 2.6148 2.6366 2.6052
</TABLE>
The collection rate has decreased from 21.97% in fiscal 1996 to 21.79% in
fiscal 1997 and the annual turnover has decreased from 2.64 in fiscal 1996 to
2.61 in fiscal 1997. This decrease in collections represent a trend to hold
longer and higher balances in a decreasing number of open accounts. It also
highlights a trend to lower payments as consumers are using more credit and
reaching maximum available credit. This slowdown in collection percent is
occurring despite an increase in the interest rate charged on open accounts as
detailed above.
During fiscal 1995, 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 Village Fair Mall store in Phoenix, Arizona, the 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 fiscal 1993 and
closed the Superstition Springs store in Mesa, Arizona during fiscal 1994.
The East Bay Mall store is planned to be closed by May 1, 1998. No stores are
planned for opening during the current fiscal year.
Retailing in general continues to undergo dynamic change as retailers deal
with problems caused by a glut of store locations 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 the Rockies, Midwest and South
showing steady economic gains. Although the economy is slowing in the market
areas for ZCMI, they continue an outlook for good economic conditions. This
is true particularly in the Utah markets, which are traditionally the prime
markets of the Company. However, continuing competition, particularly from
high volume variety stores, will continue to impact lower price points and
sales growth in hard goods lines. Also, continuing construction on the major
freeway in the Salt Lake Valley, along with commuter transit construction near
the flagship store in Downtown Salt Lake City will likely have an affect on
sales in that location for approximately three additional years. 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 attract customers
through construction and competition to continue the position of 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 68.6% of sales during
fiscal 1997 as depicted in the chart below. This percentage compares with
68.9% during fiscal 1996 and 69.5% during fiscal 1995.
Fiscal Year 1997 1996 1995
Cost of Merchandise Sold $170,665,413 $172,950,259 $171,161,111
Costs as a percent of sales 68.6% 68.9% 69.5%
The decrease in Costs of Merchandise Sold results from decreases in purchase
costs from vendors, offset by a rise in markdowns. These changes are
summarized in the table presented below:
Cost of Merchandise Sold Factors
<TABLE>
Fiscal Year: 1997 1996 1995
<S> <C> <C> <C>
Cost purchases percent 54.9% 55.3% 55.7%
Markdowns (costed) 11.2 11.0 11.0
Shrinkage (costed) 0.7 0.7 0.9
Discounts on invoices (1.4) (1.4) (1.4)
Workroom Costs 1.2 1.3 1.3
Other buying costs 2.0 2.0 2.0
Total costs of merchandise sold 68.6% 68.9% 69.5%
</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 affects the cost of merchandise sold. This calculation
resulted in a charge to cost of merchandise sold of $608,153 during fiscal
1995, while the LIFO charge to cost of merchandise sold during fiscal 1996 was
only $96,863. LIFO calculations resulted in a credit to cost of merchandise
sold of $534,800 during fiscal 1997, which is the major reason for decreases
in the cost of purchases detailed above. Markdowns have increased during
fiscal 1997 in Men's and Women's Ready to Wear as a result of slower than
expected sales during a warm Christmas season and continuing competition in
lower price points from variety stores as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As shown in the chart below, selling, general and administrative expenses
increased to 31.9% as a percent to sales and other income during fiscal 1997.
This compares to 30.7% in fiscal 1996 and 30.4% in fiscal 1995.
Selling, General and Administrative Expenses
<TABLE>
Fiscal Year 1997 1996 1995
Selling, general and
<S> <C> <C> <C>
administrative expenses $82,196,580 $79,713,352 $77,417,255
Expenses as a percent to
sales and other income 31.9% 30.7% 30.4%
Percent increase 3.1 3.0 3.5
</TABLE>
Expenses have increased as a result of changes in payroll because of
legislation on minimum wage taking effect, with related increases in payroll
taxes, health insurance, and pension expense, and as a result of pressures
from competition for labor force in the prime market areas of ZCMI. Also,
depreciation, leases, and rental of furniture, fixture and equipment due to
remodeling and expansion have also contributed to increasing expenses.
Property tax expense also increased as a result of remodeling and expansion
additions. These fixed asset additions are discussed below in cash flow
discussions. Bad debt expense increased as bankruptcies among proprietary
card customers continued to climb. These increases were offset by decreases
in supply expense and travel expense as ZCMI exercised tight expense control.
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.
Although the Prime Rate increased one-quarter of one percent in the first
calendar quarter of 1997, causing ZCMI's short term loan rates to increase
slightly, generally these rates were steady during the fiscal year allowing
management to continue to use short term borrowing to meet the working capital
needs of the company. Rates are expected to remain steady into the 1998
fiscal year.
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 during fiscal 1997 after amortization,
depreciation, and other non-cash adjustments, provided more cash than was
used. Over half of the cash provided came from payments on account reduced
Accounts Receivable customer balances offset against lower credit sales as a
result of continued use of third party credit cards. Funds were also provided
from an increase in Accounts Payable and a decrease in Prepaid Expense. Cash
was used in operating activities mainly by increasing merchandise inventories
and reducing Accrued Liabilities and Other Assets.
Net cash from investing activities during fiscal 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
Layton Hills Mall store. The categories of capital expenditures are
summarized below:
Capital Expenditures
<TABLE>
Fiscal Year: 1997 1996 1995
<S> <C> <C> <C>
Furniture, fixtures and equipment $4,616,034 $3,887,631 $2,423,607
Store remodeling and improvement 4,608,485 1,360,802 2,034,137
Total Capital Expenditures 9,224,519 5,248,433 4,457,744
</TABLE>
Capital expenditures during fiscal 1997 consisted of a major addition to the
Layton Hills store. An additional 38,000 square feet was added to the store,
based on a lease option with the mall. The project was substantially finished
by December 15, 1997 with the exception of new fixturing expected to arrive
and be installed by the end of February 1998. Also, new Polo shops were
constructed in the Downtown and Cottonwood stores in addition to smaller
remodeling projects. Lastly, a new database marketing system and a software
system to further automate receiving functions were also implemented.
Capital expenditures during fiscal 1996 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 fiscal 1995 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 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.
Future estimated capital expenditures include normal equipment and fixture
replacement estimated at $1,000,000 and the completion of a 42,000 square foot
expansion and complete remodel of the University Mall Store. The University
Mall store, which is presently owned, will be sold and leased back to the mall
and that transaction, together with incentives from the city of Orem and the
mall developer, is estimated to cover all costs except approximately
$2,500,000 of the expansion and remodeling cost. 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>
Fiscal Year: 1997 1996 1995
<S> <C> <C> <C>
Used lines of credit $38,897,019 $34,000,000 $37,800,873
Unused lines of credit 15,102,981 26,000,000 15,699,127
Total $54,000,000 $60,000,000 $53,500,000
</TABLE>
Net cash used in financing activities during fiscal 1997 provided more cash
than was used. Cash was provided by an increased use of working capital lines
of credit with long term maturities, as well as the sale of ZCMI capital stock
to the employee 401K plan. Cash was used to reduce principal balances on
mortgages and a promissory note, 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 fiscal 1997.
Financial Ratios
Liquidity and capital resources can be measured by the following ratios:
Ratios
<TABLE>
Fiscal Year: 1997 1996 1995
<S> <C> <C> <C>
Cash and short-term investments $ 1,619,319 $ 1,467,308 $ 2,698,087
Net accounts receivable 48,770,039 50,573,755 50,721,239
Total 50,389,358 52,041,063 53,419,326
Total current assets 103,632,072 103,693,709 102,633,186
Total current liabilities $27,353,797 $37,797,651 $24,856,073
Quick ratio 1.84 times 1.38 times 2.15 times
Current ratio 3.79 times 2.74 times 4.13 times
Long term debt $59,049,190 $45,159,529 $ 59,008,257
Stockholders equity 50,001,773 51,775,920 51,062,144
Total capitalization $109,050,963 $ 96,935,449 $110,070,401
LT Debt to equity ratio 118.1% 87.2% 115.6%
LT Debt to capitalization ratio 54.1% 46.6% 53.6%
Return on equity 0.4% 3.6% 1.1%
</TABLE>
As indicated in the table above, the quick ratio has decreased from 2.15 times
in fiscal 1995 to 1.84 times in fiscal 1997. This is a result of a decrease
in net Accounts Receivable, resulting from the continued change in the type of
credit sales as previously discussed. This trend has been accelerating
through the past few years. Both the quick ratio and the current ratio are
affected by a continued trend to longer term borrowing classifications, for
reasons stated in the discussion on cash position. The current ratio also
increased from 2.74 times during fiscal 1996 to 3.79 times in fiscal 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 have increased.
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 for fiscal 1997 decreased 0.5% compared to a increase of 0.9%
in fiscal 1996. However, since ZCMI uses the LIFO method for valuing
inventories, the increase does have an effect on the cost of merchandise sold.
The LIFO credit to cost of merchandise sold for fiscal 1997 was $534,800,
compared to a charge to cost of merchandise sold of $96,863 for fiscal 1996,
and a charge to cost of merchandise sold of $608,153 in fiscal 1995.
As noted in the financial statements, actuarial estimates utilizing the
discount rate of 7.0% were used in computing the pension expense for fiscal
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.
Year 2000 Issues
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. System failures or
miscalculations could result from programs recognizing dates using "00" as the
year 1900 rather than the year 2000. During fiscal 1997, ZCMI has tested
various programs and has communicated with major suppliers to determine the
extent that this issue will affect the company's operations. ZCMI has
determined that the extent of the effect on the company is minimal, due to the
recent conversion in computer hardware to the AS/400 system and the total
rewrite of programs at that time. There are numerous systems involved in this
issue, however, and ZCMI has numerous suppliers which interface with systems
in use. ZCMI anticipates that projects converting any remaining problems with
older software or outside purchased equipment, as well as POS terminal
programs and all other types of equipment which may be affected, will be
completed prior to October 1999. The costs of these conversions will be
expensed during the normal course of business and are not expected to be
material.
Anticipated Effect of Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 entitled "Reporting Comprehensive Income". SFAS No. 130 defines
comprehensive income and requires it to be reported and displayed in a full
set of general purpose financial statements. SFAS No. 130 also requires
accumulating comprehensive income to be stated separately from retained
earnings and additional paid in capital in the equity section of the statement
of financial position. The adoption of SFAS No. 130 will require ZCMI to add
disclosure to the financial statements about comprehensive income. SFAS No.
130 is required to be adopted for fiscal years beginning after December 15,
1997.
In June 1997, the FASB issued SFAS No. 131 entitled "Disclosure About Segments
of an Enterprise and Related Information". SFAS No. 131 established standards
about reporting of operating segments in annual financial statements and
requires that selected information about operating segments be reported in
interim financial statements. It also establishes standards for related
disclosure about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 may require some disclosure in the financial
statements of ZCMI. SFAS No. 131 is required to be adopted for fiscal years
beginning after December 15, 1997.
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 report. Selected quarterly financial
data required by this item is not furnished because ZCMI's capital stock is
not quoted on the National Association of Securities Dealers Automated
Quotation System.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There has been no change of accountants during the twenty-four months prior to
January 31, 1998. 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 1998 Proxy Statement
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information for response to this item is contained in the 1998 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 1998 Proxy Statement
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information for response to this item is contained in the 1998 Proxy Statement
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements: Page
Independent Auditors' Report *
Balance Sheets as of January 31, 1998 and February 1, 1997 *
Statements of Income for the Years Ended January 31, 1998,
February 1, 1997, and February 3, 1996 *
Statements of Stockholders' Equity for the Years Ended
January 31, 1998, February 1, 1997, and February 3, 1996 *
Statements of Cash Flows for the Years Ended
January 31, 1998, February 1, 1997, and February 3, 1996 *
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
per share earnings to Stockholders for the
year ended January 31, 1998
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) /s/ 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) /s/ Richard H. Madsen President and Director
(Date)
(Signature and Title) /s/ Keith C. Saunders Executive V.P., CFO, and
Director
(Date)
(Signature and Title) /s/ R. Barry Arnold Vice President and
Director
(Date)
(Signature and Title) /s/ Patricia Madsen Director
(Date)
(Signature and Title) /s/ S. F. Eccles Director
(Date)
(Signature and Title) /s/ A. Blaine Huntsman Director
(Date)
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-1272 of Zions Cooperative Mercantile Institution on Form S-8 of our report
dated March 27, 1998, appearing in this Annual Report on Form 10-K of Zions
Cooperative Mercantile Institution for the year ended January 31, 1998.
Salt Lake City, Utah
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 1,619,319
<SECURITIES> 0
<RECEIVABLES> 50,055,661
<ALLOWANCES> (1,285,622)
<INVENTORY> 49,671,933
<CURRENT-ASSETS> 103,632,072
<PP&E> 62,042,892
<DEPRECIATION> (27,561,257)
<TOTAL-ASSETS> 139,039,245
<CURRENT-LIABILITIES> (27,353,797)
<BONDS> (1,874,969)
0
0
<COMMON> (2,152)
<OTHER-SE> (49,999,621)
<TOTAL-LIABILITY-AND-EQUITY> (139,039,245)
<SALES> 248,828,800
<TOTAL-REVENUES> 257,474,231
<CGS> (170,665,413)
<TOTAL-COSTS> (252,861,993)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,322,323)
<INTEREST-EXPENSE> (4,277,180)
<INCOME-PRETAX> 335,058
<INCOME-TAX> 125,648
<INCOME-CONTINUING> 209,410
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209,410
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
_________________________________________________
PROXY DESIGNATION AND INSTRUCTION CARD
_________________________________________________
ZION'S COOPERATIVE MERCANTILE INSTITUTION
Salt Lake City, Utah 84137
THIS PROXY DESIGNATION AND INSTRUCTION IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
to be held on
May 20, 1998
The undersigned hereby appoints Richard H. Madsen and Keith C. Saunders,
or either of them, jointly or severally as agent and Proxy for the
undersigned, with full power of substitution, to vote the shares of
Zion's Cooperative Mercantile Institution's common stock held by the
undersigned to the same extent which the undersigned would be entitled to
vote such shares if personally present at the Annual Meeting of
Shareholders of Zion's Cooperative Mercantile Institution, or any
adjournment thereof, to be held in the Memorial House in Memory Grove,
485 No. Canyon Road, Salt Lake City, Utah, on Wednesday, the 20th day of
May, 1998, at 2:30 o'clock P.M. for the purpose of electing Directors and
for the purpose of conducting any other business properly brought before
the Meeting.
Without limiting the general powers hereby conferred, the undersigned
instructs said Proxies to vote as specified on the reverse side hereof.
Shares represented by signed Proxy Designations & Instructions will be
voted: (1) as specified on the matters listed on the reverse side of this
form; (2) in accordance with the Directors' recommendations where a
choice is not specified; and (3) in accordance with the judgment of the
Proxies on any other matters that properly come before the meeting.
(Please complete and sign on reverse side)
<PAGE>
1. ELECTION OF DIRECTORS FOR all nominees listed below (except)
WITHHOLD AUTHORITY to vote
(The Directors recommend as marked to the contrary below) __all
nominees listed below __
a vote FOR all nominees)
(INSTRUCTION:TO VOTE FOR SOME BUT WITHHOLD AUTHORITY TO VOTE FOR ANY
OTHER INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE
LIST BELOW AS TO WHICH YOU WITHHOLD AUTHORITY.)
R. Barry Arnold, Fred S. Ball, Spencer F. Eccles, Lela Ence, A. Blaine
Huntsman, James S. Jardine, Patricia Madsen, Richard H. Madsen, and
Keith C. Saunders.
IMPORTANT: Please sign exactly as your name appears.
DATED:_____________________________, 1998
When shares are held by joint tenants, both should sign.
When signing as attorney, as executor, administrator,
__________________________________________
trustee or guardian, please give full title as such. If
(Stockholder's Signature)
a corporation, please sign in full corporate name by
__________________________________________
President or other authorized officer. If a partnership, (Joint
Stockholder's Signature {if any})
please sign in partnership name by authorized person.
_______________________________________________________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.
PLEASE INDICATE ANY CHANGE OF ADDRESS
__________________________________________________
(Street and Number)
__________________________________________________
(City) (State) (Zip Code)
ZION'S COOPERATIVE MERCANTILE INSTITUTION
2200 South 900 West
Salt Lake City, Utah 84137
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 20, 1998
To the Shareholders of
ZION'S COOPERATIVE MERCANTILE INSTITUTION
Pursuant to the laws of the State of Utah and its Bylaws, the Annual
Meeting of the Shareholders of Zion's Cooperative Mercantile Institution
("the Corporation") will be held in the Memorial House in Memory Grove,
485 No. Canyon Road, Salt Lake City, Utah, on Wednesday, May 20, 1998 at
2:30 p.m. for the following purposes:
1. To elect a Board of Directors for the ensuing year,
2. To transact such other business as may properly come before the
meeting and any adjournments thereof.
The close of business on Wednesday, April 15, 1998, was fixed by the
Board of Directors as the time for the determination of the shareholders
of record entitled to notice of and to vote at the Annual Meeting and any
and all adjournments thereof.
We hope that all shareholders who can conveniently do so will attend the
Annual Meeting in person. Whether or not you expect to attend, it will
facilitate the conduct of the Corporation's business if you will
immediately sign the enclosed proxy instruction card and return it in the
envelope provided in order that your shares may be represented at the
Annual Meeting. No postage is required if the proxy instruction card is
mailed in the United States.
by ORDER OF THE BOARD OF DIRECTORS
Dated at Salt Lake City, Utah
April 20, 1998
KEITH C. SAUNDERS
Executive Vice President and Secretary
<PAGE>
Z C M I
ZION'S COOPERATIVE MERCANTILE INSTITUTION
2200 South 900 West
Salt Lake City, Utah 84137
PROXY STATEMENT
April 20, 1998
GENERAL INFORMATION FOR SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Zion's Cooperative Mercantile Institution, a
Utah corporation (hereinafter called the "Corporation") of Proxy
Designations and Instructions for use at the Corporation's Annual Meeting
of Shareholders to be held in the Memorial House in Memory Grove, 485 No.
Canyon Road, Salt Lake City, Utah on Wednesday, May 20, 1998 at 2:30
p.m., and at any and all adjournments thereof.
A Proxy Designation and Instruction Card ("Proxy Card") is enclosed for
your use in voting at the Annual Meeting. You are requested to date and
sign the enclosed Proxy Card, and to return it in the envelope provided.
All duly executed Proxy Cards received prior to the Annual Meeting will
have the shares represented thereby voted in accordance with the choices
specified therein. As to any matter for which no choice has been
specified in a duly executed Proxy Card, the shares represented thereby
will be voted at the Meeting or any adjournment thereof for election as
directors all of the nominees listed herein, and otherwise as recommended
by the Directors, or otherwise as deemed appropriate by the Proxies on
other business properly coming before the meeting. Any shareholder
signing a Proxy Card has the power to revoke his/her voting directions at
any time before the designated Proxies vote at the Annual Meeting by
notifying the Secretary of the Corporation in writing prior to 2:30 p.m.
M.S.T. on May 20, 1998, or by voicing such revocation in person at the
Annual Meeting at the time voting occurs. If you wish to give your proxy
to someone other than the named Proxies on the enclosed Proxy Card, you
may do so by crossing out the names of all of the designated Proxies and
writing in the name of another person or persons (not more than two).
The signed Proxy Card must be presented at the Meeting by the person or
persons you have designated on the card.
The cost of preparing, assembling and mailing these proxy materials will
be borne by the Corporation. The solicitation of Proxy Designations and
Instructions by the Board of Directors is being made by mail, and in
addition may be made by officers and directors of the Corporation, or
their agents, in person or by telephone. No additional compensation will
be given to officers or directors for such solicitation. Non-employee
agents of the Board of Directors may be retained to assist in the proxy
solicitation process at a cost to the Corporation, if any, not expected
to exceed $10,000. Custodians of securities held for shareholders of
record (e.g., banks, brokers, etc.) may be paid their reasonable
out-of-pocket expenses incurred in forwarding proxy materials to shareholders.
This Proxy Statement, the enclosed Proxy Card, and the Corporation's 1997
Annual Report to Shareholders are being sent to Shareholders for delivery
beginning May 4, 1998. Shareholders who have not received a copy of any
of these materials should contact the Corporation at (801) 579-6404 to
obtain a copy.
VOTING AT THE ANNUAL MEETING
Shareholders of record will be entitled to one vote for each share of
Common Stock held at the close of business on April 15, 1998, which is
the record date for determination of the shareholders entitled to notice
of and to vote at the Annual Meeting and at any and all adjournments.
Shares may be voted, without cumulation, as to each Director-nominee, and
as to any other proposal for shareholder action as may properly come
before the Annual Meeting. On April 15, 1998, the Corporation had
2,198,087 shares (2,168,942 issued less 16,855 treasury shares plus
46,000 restricted shares) of Common Stock (par value $0.001) issued and
outstanding. The issued and outstanding shares do not include any shares
of stock options.
The presence in person or by proxy of a majority of the outstanding
voting shares is required to constitute a quorum at the Annual Meeting.
Once a quorum is determined to exist, a plurality of votes cast at the
Annual Meeting is required to elect each Director. Only Proxies marked
"FOR all nominees (except as marked to the contrary below)" or "WITHHOLD
AUTHORITY to vote all nominees below" will be cast in the election of
Directors and considered in determining the plurality of votes in favor
of a Director-nominee. Abstentions and broker non-votes will not be
counted in determining the shares voting or the plurality of votes for
any Director nominee. Certain shareholders beneficially owning, as a
group, in excess of 50% of the outstanding shares have indicated an
intention to vote in favor of all director nominees described in this
Proxy Statement. Such votes, if cast, will be determinative of the
voting results with respect to the election of Directors.
PRINCIPAL SHAREHOLDERS
The following table provides information with respect to any person known
to the Corporation to be the beneficial owner (within the meaning of
applicable governmental regulations) of five percent (5%) or more of any
class of the Corporation's voting securities as of April 15, 1998:
Table 1
Amount and Nature of Percent of
Name and Address Title of Class Beneficial Ownership Class
ZCMI Reserve Trust Common Stock 1,135,882 shares 51.68%
50 East North Temple
Salt Lake City, UT 84150
Richard H. Madsen Common Stock 188,167 shares* 8.56%
4111 Parkview Dr
Salt Lake City, UT 84124
_______________________
*Includes 146,905 shares as to which Mr. Madsen shares voting and
investment power as a co-trustee of Francis A. Madsen Family Voting Trust.
MANAGEMENT OF THE CORPORATION
Board of Directors
The business of the Corporation is managed under the direction of its Board
of Directors, currently chaired by Richard H. Madsen. The Directors have
responsibility for establishing broad corporate policies and for the overall
performance of the Corporation. The Directors are not, however, involved
in operating the Corporation's business on a day-to-day basis. This
day-to-day management is entrusted to the Executive Officers elected by the
Board of Directors. The Board is kept advised of the Corporation's
business through regular written reports, analyses, and discussions with the
Executive Officers of the Corporation.
The Board meets on a regularly scheduled basis during the year to review
significant developments affecting the Corporation and to act on matters
requiring Board approval. It also holds special meetings when an important
matter requires Board action between scheduled meetings. Members of senior
management are regularly invited to Board meetings to report on and discuss
their areas of responsibility. The Directors met six times as a full Board
during 1997. All Directors attended all of the meetings except Messrs.
Madsen, Huntsman, Arnold, Ball, and Mrs. Ence who attended five meetings.
The Directors of the Corporation beneficially own, as a group, 297,249
shares of the Corporation's Common Stock (including 35,300 currently
exercisable but unexercised option shares and 32,000 shares of restricted
stock ), or 13.52% of the Corporation's outstanding Common Stock as of
April 15, 1998.
The Bylaws permit payment of Directors' expenses incurred in attending
meetings and some, but not all, of the Directors received reimbursement for
such expenses. Additionally, fees of $700 were paid to Directors for each
of the six meetings held.
The Executive Committee of the Board of Directors exercises the powers of
the Board in the management of the business and affairs of the Corporation
between the Board's regularly scheduled meetings. The Executive Committee
serves as the nominating committee for the election of Directors and,
although there are no formal procedures for shareholders to recommend
nominations, the Committee will consider any recommendations from
shareholders that may be made. The Executive Committee also functions as
the Retirement Committee and administers the plans and retirement programs
of the Corporation, including a review of the actuary reports, and reports
to the Board of Directors. Also, the Executive Committee makes compensation
recommendations to the Board for all corporate officers. The Executive
Committee keeps regular minutes of its meetings and reports to the Board at
the regular Directors' meetings. The Executive Committee met eleven times
during the year. All members attended all meetings except Mr. Madsen who
attended ten meetings. Members of the Executive Committee are paid an
annual fee of $6,000 for their service which is in addition to any other
fees earned as a Director of the Corporation.
The Audit Committee of the Board, which met twice during 1997, reports to
the Board of Directors with respect to various auditing and accounting
matters, the scope of the audit procedures, the performance of the internal
auditors, and accounting practices of the Corporation. All members attended
all meetings. Fees of $400 are paid to Committee Members for each meeting
held.
Information on Executive Officers
Set forth in Table 2, below, are the names, ages, positions and beneficial
ownership of shares (as of April 15, 1998) in the Corporation of all
Executive Officers, other than Messrs. Madsen, Saunders, and Arnold, whose
biographical information is disclosed together with the other nominees for
Director in Table 7, below. Executive Officers serve until the election of
their successors by the Board of Directors.
Table 2 - Executive Officers of the Corporation
Nancy Mortensen, 56, is the Corporation's Vice President-Marketing. Ms.
Mortensen is the beneficial owner of 21,550 shares of the Corporation's
Common Stock, including 10,000 option shares exercisable within 60 days but
not yet exercised and 10,000 shares of restricted stock.
Darrell F. Robinette, 71, is the Corporation's Vice President-Stores. Mr.
Robinette is the beneficial owner of 21,000 shares of the Corporation's
Common Stock, including 4,000 shares of restricted stock and 8,500 option
shares exercisable within 60 days but not yet exercised.
All current Executive Officers as a group (5 persons), beneficially own
274,296 shares, or 12.48%, of the Corporation's Common Stock (of which
52,500 shares are option shares exercisable within 60 days of the record
date but not yet exercised and 46,000 shares are restricted stock.)
COMPENSATION OF EXECUTIVE OFFICERS
The Executive Committee acts as the Compensation Committee of the Board of
Directors as to compensation of Executive Officers. Messrs. Madsen and
Saunders do not vote on Executive Officer compensation matters.
BASE SALARY. In assessing salaries and salary increases, the primary
factors considered are: the Committee's assessment of performance on
the job, salaries of comparable jobs in similar size retail
companies, and compensation that the Committee believes will help
attract, motivate and retain qualified executives.
Chief Executive Officer Salary Action. In an effort to pay Mr.
Madsen a salary more in line with the Committee's view of his
performance and position, Mr. Madsen was given base salary
raises of 6%, 0%, and 5% respectively in 1995, 1996, and 1997.
Other Named Executive Officers. The other Executive Officers
named in Table 3 received increases ranging between 2.8% to
4%, 0%, and 4.8% to 5%, respectively in 1995, 1996, and 1997,
based on subjective evaluations made by the Committee
in consultation with Mr. Madsen.
SHORT-TERM INCENTIVES. All the named Executive Officers participate in an
annual cash bonus plan. The bonuses awarded are 3% of the increase or
decrease in the Corporation's pretax profits from year to year added to or
subtracted from the previous year's bonus. Bonuses are distributed between
the executive officers based on base salary and rating points determined by
an officer's position in the Corporation. Bonuses awarded in 1995, 1996, and
1997 amounted to $187,581, $0, and $80,999 respectively, for all Executive
Officers combined. Bonuses are earned in the preceding year and paid in
March the following year after Company profits are determined in the second
close of the Company books. This is prior to audited results.
LONG-TERM INCENTIVES. Stock options have been awarded based on a plan
approved by shareholders in 1982 at an exercise price of $16.50 and in 1996
at an option price of $11.25. During the year 1996, the Board approved
46,000 shares of common stock to be awarded to Executive Officers and
124,000 shares of common stock as stock options granted to the Executive
Officers and key management associates of the Company. There are 80,000
stock options that have not been granted. (See Table 5)
The Committee believes that this compensation mix is in the best interests
of the shareholders and supports the business and financial objectives of
the organization.
Richard Madsen, Chairman
Patricia Madsen
James S. Jardine
Keith C. Saunders
Table 3, below, is a statement of compensation paid by the Corporation
during 1997 to its Chief Executive Officer and to each of the four (4)
Executive Officers who were paid in excess of $100,000 in salary and bonus
during the year.
<TABLE>
Table 3 - SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
Name and Year Salary(1) Bonus(2) Stock Options All Other
Principal Position Awards /SARS Compensation(3)
<S> <C> <C> <C> <C> <C> <C>
Richard H. Madsen1997 $246,892 $27,996 $ -0- $3,618
President & CEO 1996 $233,184 $ -0- $135,000 13,000 $2,862
1995 $220,354 $62,483 $ -0- -0- $4,254
Keith C. Saunders1997 $156,262 $17,231 $ -0- $2,322
Executive V. P. 1996 $150,000 $ -0- $112,500 11,000 $1,830
Secretary & CFO 1995 $149,415 $41,699 $ -0- -0- $2,785
R. Barry Arnold 1997 $129,153 $13,688 $ -0- $1,974
Vice President 1996 $123,800 $ -0- $112,500 10,000 $1,594
1995 $123,092 $31,327 $ -0- -0- $2,387
Darrell F. 1997 $109,895 $11,097 $ -0- $1,692
Robinette 1996 $105,040 $ -0- $45,000 10,000 $1,351
Vice President 1995 $104,418 $26,166 $ -0- -0- $1,961
Nancy Mortensen 1997 $108,800 $10,987 $ -0- $1,801
Vice President 1996 $104,000 $ -0- $112,500 10,000 $1,413
1995 $103,385 $25,906 $ -0- -0- $2,052
</TABLE>
1 Amounts shown as Salary include directors' fees, if any, paid by the
Corporation, but do not include expenditures for company cars or
merchandise or service discounts made available to the Executive
Officers, or other expenses paid by the Corporation on behalf of or
reimbursed to Executive Officers, which the Corporation believes
constitute ordinary and necessary business-related expenses. All
such expenses are paid or reimbursed by the Corporation in the
interest of assisting those individuals to do their jobs effectively,
and to attract and retain qualified personnel and clients, and do not
exceed $25,000 per Executive Officer per year.
2 Amounts shown as bonus are earned in the preceding year but are not
paid until March of the year indicated.
3 Amounts shown include contributions by the Corporation to the
Employee Savings Plan (a 401(k) plan open to all full-time employees
of the Corporation). The named Executive Officers were able to
contribute up to 4.00% of their annual and bonus salary (up to
$150,000) to this plan in 1997, up to the IRS limitation of $9,500
and the Corporation contributed a matching amount equal to 37.5% of
the Executive Officers contribution.
Compensation/Benefit Plans.
Compensation and benefit plans available generally for employees of
the Corporation that are available to Executive Officers are as follows:
Retirement Plan. After one year of employment, employees of the Corporation
who are age 21 and older and who work 1,000 hours or more each year become
participants in the ZCMI Retirement Plan, which is fully funded by the
Corporation. At the time of a participant's retirement, the benefit
payable is equal to the sum of the benefit earned as of April 30, 1990,
plus, commencing May 1, 1990, the total of 1% of taxable earnings for
each year of Credited Service. The benefit for retirement prior to age 65
is actuarily adjusted for the age difference. The Plan allows vesting of
employer contributions after five (5) years of service.
The figures shown in Table 4, below, are estimated annual benefits as of
December 31, 1997, based upon retirement at age 65 under the Retirement
Plan.
<TABLE>
Table 4 - Annualized Retirement Plan Projection
Yearly 10 Years of 15 Years of 20 Years of 25 Years of 30 Years of
Salary Service Service Service Service Service
<S> <C> <C> <C> <C> <C>
$100,000 10,000 15,000 20,000 25,000 30,000
$125,000 12,500 18,750 25,000 31,250 37,500
$150,000 15,000 22,500 30,000 37,500 45,000
$200,000 20,000 30,000 40,000 50,000 60,000
$250,000 25,000 37,500 50,000 62,500 75,000
</TABLE>
These estimated annual benefits on Retirement have been computed on the
basis of assumed continuation of remuneration at their respective rates as
received for 1991 until retirement at age 65 and the earned benefit frozen
as of December 31, 1989. The Corporation does not have any supplemental
retirement plan for its Executive Officers. Salary for purposes of the
Retirement Plan does not include Directors' fees. (Benefits shown on Table
4 are in addition to the "frozen" benefit calculated at December 31, 1989.
For Messrs. Saunders, Arnold, and Robinette this amount is $25,352.88,
$18,999.82, and $24,409.09 respectively. For Ms. Mortensen this amount is
$13,461.69.) As of December 31, 1997 the credited years of service under
the retirement plan for the Executive Officers named in Table 3 were eight
years for Mr. Madsen, 23 years for Mr. Saunders, 29 years for Mr. Arnold,
23 years for Mr. Robinette, and 35 years for Ms. Mortensen.
Employee Savings Plan. The Corporation's 401(k) salary deferral plan allows
covered employees to make pre-tax contributions of up to 16% of salary (but
no more than $9,500 for 1997) to their Plan account. To meet requirements
of applicable law, highly paid employees were limited to a maximum salary
deferral of 4% of salary in 1997. The Corporation contributes a matching
amount equal to 50% of the eligible employee's contribution for the first
2% of pay contributed and a 25% match on amounts over 2% of pay, up to a
maximum of 2% of a participating employee's salary. Covered employees have
a choice of ten (10) investment plans into which they may direct their
contributions and the matching employer contribution in the Plan. An
employee is fully vested in the employer contribution to the Plan after 2
years of service. Employer matching contributions made for the benefit of
the five Executive Officers named in Table 3 are shown under "All Other
Compensation".
Stock Options Granted in 1997. There were no stock options granted in 1997.
Aggregated Option-SAR Exercises in last Fiscal Year and FY-End Option-SAR
Values. Table 5, below, sets out the aggregate Option-SAR Exercises by the
named Executive Officers in Table 3, and by all Executive Officers as a
group, during 1997, and also sets out numbers of shares of Common Stock
underlying currently outstanding options and the putative value of such
options at fiscal year-end.
<TABLE>
Table 5
Name Number of Value Number of Value of
Shares Realized Securities Unexercised
Acquired on ($) Underlying In-the-Money
Exercise Unexercised Options/SARs at
Options/SARs at Fiscal Year-End
Fiscal Year-End ($)
(#) (Exercisable/
(Exercisable/ Unexercisable)
Nonexercisable)
<S> <C> <C> <C> <C>
Richard H. Madsen -0- $0.00 13,000 $48,750
Keith C. Saunders -0- $0.00 11,000 $41,250
R. Barry Arnold -0- $0.00 10,000 $37,500
Darrell F.
Robinette 1500 $2,875 8,500 $31,875
Nancy Mortensen -0- $0.00 10,000 $37,500
All Executive
Officers as 1500 $2,875 52,500 $196,875
a Group (5 persons,
including those named
above)
</TABLE>
# options exercisable within sixty days
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Some of the Directors and Executive Officers of the Corporation, members of
their immediate families, and corporations and organizations of which they
are executive officers or in which they or their immediate families have at
least a 10% interest, are customers of, or service providers to, the
Corporation. Between January 1, 1997 and December 31, 1997, these persons
have had immaterial business transactions in the ordinary course of business
with the Corporation, all of which were on substantially the same terms as
those prevailing at the time for comparable transactions with unaffiliated
persons, and did not involve more than the normal risk of collectibility or
present other unfavorable features. The Corporation expects to continue to
have such transactions on similar terms in the future.
COMPLIANCE WITH SECTION 16 REPORTING OBLIGATIONS
The Directors and Executive Officers of the Corporation are required under
the Securities Exchange Act of 1934 to file reports with the Securities and
Exchange Commission evidencing their ownership of, and their current
transactions in, the Corporation's common stock. This is a personal
obligation of the Executive Officers and Directors. Based on information
provided to the Corporation by its Directors and Executive Officers, it
appears that all Directors and Executive Officers have timely filed these
reports during 1997.
A Severance Pay Plan is available for all associates who have worked full
time for at least one year including Executive Officers. The plan pays one
week's pay for those who have worked one year but less than two years, and
two weeks' pay for those who have worked more than two years.
LAST YEAR'S (1997) ANNUAL MEETING
The 1997 Annual Meeting of the Shareholders was held on May 21, 1997 in Salt
Lake City, Utah. There were 1,652,311 shares of Common Stock present at the
1997 Annual Meeting in person or by proxy, which number was 75% of those
entitled to vote, and thus constituted a legal quorum. Each of the nominees
to the Board of Directors was voted upon separately, and each was elected
by the affirmative vote of more than 72% of the shares present and voting.
PROPOSALS FOR SHAREHOLDER ACTION
Election of Directors
The persons named in Table 6, below, have been nominated by the Executive
Committee for election to the Board of Directors of the Corporation, to
serve until the next Annual Meeting or until their successors are elected
and qualified. Additional nominations will be accepted from the floor at
the Annual Meeting, and interested shareholders are invited to suggest names
to the Executive Committee from time to time for nomination as a Director
of the Corporation.
The Bylaws of the Corporation provide for a Board of Directors of up to 20
members. Nine (9) Directors are being nominated by the Executive Committee
for election at the 1998 Annual Meeting. The Board knows of no reason why
any nominee may be unable to serve as a Director. If any nominee is unable
to serve, the shares represented by all valid proxies will be voted for the
election of such other person as the Board may recommend, or the Board may
reduce the number of Directors to eliminate the vacancy. It is the
intention of the Proxies to vote FOR the election of ALL of the nominees
listed in Table 6, below, in the absence of contrary direction. All of the
nominees are current Directors, and were elected to their present term of
office by a vote of shareholders at the 1997 Annual Meeting.
There is set forth below, in Table 6, as to each of the nine (9) nominees
for election as a Director, his/her age, the year he/she became a Director
of the Corporation, his/her principal occupation, his/her business
experience during the past five years, other directorships held at this
time and beneficial stock ownership in the Corporation. Directors serving
on the Executive (*) or Audit (+) Committees of the Board are also so
identified:
Table 6 - Nominees for Director
R. BARRY ARNOLD, 53, has been a Director of the Corporation since 1990.
He is Vice President and General Merchandise Manager of the Corporation.
Mr. Arnold beneficially owns 20,367 shares of the Corporation's Common
Stock, including 10,000 option shares exercisable within 60 days but not yet
exercised and 10,000 shares of restricted stock. This amount represents
approximately .93% of the issued and outstanding shares at the Record Date.
FRED S. BALL, 65, has been a Director of the Corporation since 1996. He
is a Senior Vice President of Zions First National Bank and President of
CreaCtive Marketing. He previously served as President and Chief Executive
Officer of the Salt Lake Area Chamber of Commerce. Mr. Ball beneficially
owns 400 shares of the Corporation's Common Stock.
+SPENCER F. ECCLES, 63, has been a Director of the Corporation since 1976.
He is Chairman, Chief Executive Officer, and a Director of First Security
Corporation (a bank holding company). Mr. Eccles is also a Director of
Anderson Lumber Company, Union Pacific Corporation and the Salt Lake
Olympic Organizing Committee. He is the beneficial owner of 7,500 shares
of the Corporation's Common Stock.
LELA "LEE" ENCE, 70, has been a Director of the Corporation since 1987. She
retired as Executive Director of the University of Utah Alumni Association
in 1989. Mrs. Ence beneficially owns 491 shares of the Corporation's Common
Stock.
+A. BLAINE HUNTSMAN, 61, has been a Director of the Corporation since 1977.
He was Chairman and Chief Executive Officer of Olympus Capital Corporation,
the holding company of Olympus Bank, until its acquisition by Washington
Mutual in April 1995. He is also aTrustee of The Achievement Funds Trust,
a group of seven mutual funds. Mr. Huntsman is a former Dean and professor
of the College of Business at the University of Utah. Mr. Huntsman
beneficially owns 3,700 shares of the Corporation's common Stock.
*JAMES S. JARDINE, 51, has been a Director of the Corporation since 1985.
He is the Managing Director of the law firm of Ray, Quinney & Nebeker (which
acts as legal counsel to the Corporation). Mr. Jardine is also a Director
of Daw Technologies Inc. and is Secretary to the Salt Lake Olympic
Organizing Committee. Mr. Jardine beneficially owns 400 shares of the
Corporation's Common Stock.
*+PATRICIA MADSEN, 69, has been a Director of the Corporation since 1976.
She is President of Sterling Furniture Company, and beneficially owns 60,512
shares of the Corporation's Common Stock.1,3
*RICHARD H. MADSEN, 59, has been a Director of the Corporation since 1988
and is currently the Chairman, President and Chief Executive Officer of the
Corporation. He was formerly Chairman and Chief Executive Officer and is
currently a Director of Madsen Furniture Galleries. He is also a Director
of Zions Bancorporation. Mr. Madsen beneficially owns 188,167 shares of the
Corporation's Common Stock which includes 12,000 shares of restricted stock
and 13,000 option shares exercisable within 60 days but not yet exercised.
This amount represents approximately 8.56% of the issued and outstanding
shares at the Record Date.2,3
*KEITH C. SAUNDERS, 55, has been a Director of the Corporation since 1981,
and is Executive Vice President, Chief Financial Officer and Secretary of
the Corporation. Mr. Saunders beneficially owns 23,212 shares of the
Corporation's Common Stock which includes 10,000 shares of restricted stock
and 11,000 option shares exercisable within 60 days but not yet exercised.
This amount represents approximately 1.06% of the issued and outstanding
shares at the Record Date.
______________________
1Includes 17,137 shares as to which Ms. Madsen shares voting and investment
power as a co-trustee or controlling partner of various Madsen family trusts
and partnerships, but not including any shares shown for Richard Madsen, as
co-trustee, above.
2Includes 146,905 shares held of record by the Francis A. Madsen Family
Voting Trust, as to which Mr. Madsen is Co-Trustee.
3Madsen Furniture Galleries and Sterling Furniture Co., of which Mr. Madsen
and Ms. Madsen are directors, respectively, compete with the Corporation's
furniture sales.
Historical Performance of ZCMI Stock
The following table and graph compares the cumulative total
shareholder return on a hypothetical $100 purchase of ZCMI common stock on
December 31, 1992 over a five-year period, to that of a hypothetical $100
purchase of (i) Retail Department Stores stock price index, (ii) Retail
Composite including department stores stock price index, and (iii) the
average of the high and low stock prices of the Standard & Poor's Retail
Stores Composite stock price index as of the same date. The four indices
assume reinvestment of dividends.
<TABLE>
MEASURE Base93 Jan 94 Jan 95 Jan 96 Jan 97 Jan 98
<S> <C> <C> <C> <C> <C> <C>
ZCMI Common 100.00 123.52 144.12 167.69 191.62 232.70
Retail Composite 100.00 96.38 89.25 96.23 114.87 170.34
Retail DS-500 100.00 114.66 101.64 121.39 130.42 171.05
S&P 500 Index 100.00 112.88 113.48 157.35 198.80 252.30
</TABLE>
OTHER BUSINESS
Management does not know of any other business to be presented at the
Meeting. However, if any other business is presented, it is the intention
of the Proxies to vote according to their best judgment with respect to such
other business.
On written request, the Corporation will provide, without charge, a copy of
the Corporation's Form 10-K Report for 1997 filed with the Securities and
Exchange Commission (including the financial statements and the schedules
thereto and a list briefly describing the exhibits thereto) to any
shareholder. The reports will be available for mailing in May, 1998, and
requests should be sent to: Keith C. Saunders, Executive Vice President and
Chief Financial Officer, 2200 South 900 West, Salt Lake City, Utah 84137.
INDEPENDENT AUDITORS
Upon recommendation of its Audit Committee, the Board of Directors has
appointed Deloitte & Touche LLP as the independent auditors to examine the
accounts of the Corporation and its subsidiaries for the year ending January
31, 1999. This firm has audited the Corporation's accounts for many years
and is one of the largest and best known firms of independent certified
public accountants. A member of the firm will be in attendance at the
Annual Meeting to make a statement on behalf of the firm if he so desires
and to answer appropriate questions, if any, from shareholders.
DEADLINE FOR SHAREHOLDER PROPOSALS
If any shareholder wishes to present a proposal for action at the 1999
Annual Meeting of the Shareholders, the shareholder must comply with
applicable Securities and Exchange Commission Regulations, including
adequate notice to the Corporation. Any proposal must be submitted in
writing by Certified Mail -- Return Receipt Requested, to Zion's Cooperative
Mercantile Institution, Attention: Secretary of the Corporation, 2200 South
900 West, Salt Lake City, Utah, 84137, on or before December 31, 1998.
