ZIONS COOPERATIVE 
  MERCANTILE INSTITUTION
  Financial Statements as of January 31, 1998 and February 1, 1997 and for
  Each of the Three Years in the Period Ended January 31, 1998 and Independent
  Auditors' Report
    <PAGE>
INDEPENDENT AUDITORS' REPORT
  To the Board of Directors and Stockholders of
    Zions Cooperative Mercantile Institution:
  We have audited the accompanying balance sheets of Zions Cooperative
  Mercantile Institution (ZCMI) as of January 31, 1998 and February 1, 1997,
  and the related statements of income, stockholders' equity, and cash flows
  for each of the three years in the period ended January 31, 1998.  These
  financial statements are the responsibility of ZCMI's management.  Our
  responsibility is to express an opinion on these financial statements based
  on our audits.
  
  We conducted our audits in accordance with generally accepted auditing
  standards.  Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free
  of material misstatement.  An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements. 
  An audit also includes assessing the accounting principles used and
  significant estimates made by management, as well as evaluating the overall
  financial statement presentation.  We believe that our audits provide a
  reasonable basis for our opinion.
  
  In our opinion, such financial statements present fairly, in all material
  respects, the financial position of ZCMI at January 31, 1998 and February
  1, 1997, and the results of its operations and its cash flows for each of
  the three years in the period ended January 31, 1998 in conformity with
  generally accepted accounting principles.
  
  
  March 27, 1998
<TABLE>
  
  ZIONS COOPERATIVE MERCANTILE INSTITUTION                            
                                        
  BALANCE SHEETS AS OF JANUARY 31, 1998 AND FEBRUARY 1, 1997        
                                        
  ASSETS                                   1998              1997
  CURRENT ASSETS:                                      
    <S>                               <C>                <C>
    Cash and short-term investments   $  1,619,319       $ 1,467,308  
    Accounts receivable (less allowance for doubtful                  
      accounts of $1,285,622 
      and $1,334,154, respectively)     48,770,039        50,573,755 
    Inventories                         49,671,933        49,061,807 
    Prepaid expenses                     1,074,590         1,107,448  
    Deferred income taxes                2,496,191         1,483,391
                              
            Total current assets       103,632,072       103,693,709      
               
  PROPERTY, PLANT, AND EQUIPMENT:                                          
    Land                                   177,058           177,058     
    Buildings and improvements           4,256,933         4,253,922   
    Leasehold improvements              16,505,903        15,468,375   
    Furniture, fixtures, and equipment  13,392,564        12,992,530 
    Leased property under capital
       leases                           24,570,847        31,364,742     
    Construction in progress             3,139,587           682,160
                    
            Total                       62,042,892        64,938,787 
    Less accumulated depreciation and
      amortization                      27,561,257        31,835,765
  
     Property, plant, and 
      equipment - net                   34,481,635        33,103,022
                    
  DEFERRED INCOME TAXES                                      196,135     
     
  OTHER ASSETS                             925,538           625,538 
  
                                                            
  TOTAL                           $    139,039,245   $   137,618,404           
</TABLE>
                                        
  See notes to financial statements.           (Continued)                 
                                        
  
<TABLE>
    
  ZIONS COOPERATIVE MERCANTILE INSTITUTION             
               
  BALANCE SHEETS AS OF JANUARY 31, 1998 AND FEBRUARY 1, 1997     
               
  LIABILITIES AND STOCKHOLDERS' EQUITY     1998             1997    
               
  CURRENT LIABILITIES:             
    <S>                               <C>              <C>
    Accounts payable - trade          $  9,414,512     $  9,269,359
    Short-term borrowings - banks                        10,000,000
    Current portion of long-term debt      372,250          340,041
    Current portion of obligations
      under capital leases               1,620,410        1,864,206
    Accrued liabilities:                
      Salaries and commissions           2,001,202        2,071,931
      Sales, payroll, and other taxes    4,140,998        3,575,688
      Income taxes payable                  69,644        1,284,563
      Outstanding gift certificates      2,010,863        1,934,568
      Pension liability                  2,558,959        1,528,987
      Other                              3,337,941        4,004,320
    Deferred gain on sale and leaseback  1,827,018        1,923,988
               
            Total current liabilities   27,353,797       37,797,651
               
  LONG-TERM DEBT                        40,771,989       26,246,034
     
  DEFERRED INCOME TAXES                    789,567           
     
  LONG-TERM DEFERRED GAIN ON SALE                                
    AND LEASEBACK                        3,837,578        5,089,551
     
  OBLIGATIONS UNDER CAPITAL LEASES      16,284,541       16,709,248
               
  TOTAL LIABILITIES                     89,037,472       85,842,484
               
  COMMITMENTS AND CONTINGENCIES (Note 2)               
               
  STOCKHOLDERS' EQUITY:            
    Capital stock - par value $.001; 5,000,000 shares authorized;     
     2,151,660 and 2,164,483 shares issued at January 31,
     1998 and February 1, 1997, 
     respectively                            2,152            2,164
    Paid-in capital                     14,706,971       14,816,213
    Pension liability adjustment        (2,271,431)      (1,806,875)
    Retained earnings                   37,564,081       38,764,418
               
            Stockholders' equity - net  50,001,773       51,775,920
               
  TOTAL                           $    139,039,245  $   137,618,404
</TABLE>
               
               
  See notes to financial statements.         (Concluded)    
    <PAGE>
  ZIONS COOPERATIVE MERCANTILE INSTITUTION                  
<TABLE>
                    
  STATEMENTS OF INCOME                  
  FOR THE YEARS ENDED JANUARY 31, 1998,
  FEBRUARY 1, 1997, AND FEBRUARY 3, 1996
  
                                     1998             1997           1996
  <S>                             <C>            <C>            <C>
  NET SALES AND OTHER INCOME      $257,474,231   $259,599,460   $254,371,323 
                    
  COSTS AND EXPENSES:
    Cost of merchandise sold       170,665,413    172,950,259    171,161,111 
    Selling, general, and 
     administrative expenses        82,196,580     79,713,352     77,417,255 
    Interest expense:                        
      Borrowings                     2,514,357      2,495,892      2,938,466 
      Capital leases                 1,762,823      1,918,675      2,072,060 
                    
        Total costs and expenses   257,139,173    257,078,178    253,588,892 
                    
  INCOME BEFORE INCOME TAX                   
    EXPENSE                            335,058      2,521,281        782,431 
                    
  INCOME TAX EXPENSE                   125,648        683,656        200,791 
                    
  NET INCOME                       $   209,410   $  1,837,625     $  581,640
  
  EARNINGS PER COMMON SHARE -                
    Basic and diluted              $      0.09  $        0.84     $     0.27 
                    
  AVERAGE COMMON SHARES -                    
    Basic and diluted                2,224,736      2,189,322      2,153,600 
</TABLE>
     
  
  See notes to financial statements.    
<TABLE>
  
  ZIONS COOPERATIVE MERCANTILE INSTITUTION                                      
                                        
  STATEMENTS OF STOCKHOLDERS' EQUITY                                       
  FOR THE YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997, AND FEBRUARY 3, 1996
  
                                                   Pension        
     Capital Stock     Paid-in    Treasury Stock  Liability     Retained     
     Shares   Amount   Capital    Shares  Amount  Adjustment    Earnings
  BALANCE,  JANUARY 28, 1995
   <C>       <C>     <C>           <C>   <C>       <C>        <C>
   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  
  
    Purchases of treasury stock   25,008 335,523
  
    Issuance of capital stock(net of 25,008 shares of treasury stock)       
      (12,823)   (12)   (109,242) (25,008)(335,523)
  
    Pension liability adjustment (Note 6)            (464,556)
  
    Net income                                                    209,410
  
    Cash dividends ($.63 a share)                              (1,409,747)
  
  BALANCE, JANUARY 31, 1998
    2,151,660 $2,152 $14,706,971   NONE   NONE    $(2,271,431)$37,564,081
</TABLE>
                                   
  See notes to financial statements.                                  
                                   
<TABLE>
  
  ZIONS COOPERATIVE MERCANTILE INSTITUTION                  
                    
  STATEMENTS OF CASH FLOWS                   
  FOR THE YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997, AND FEBRUARY 3, 1996 
              
                                             1998        1997       1996
  CASH FLOWS FROM OPERATING ACTIVITIES:                
    <S>                                  <C>        <C>         <C>
    Net income                           $  209,410 $ 1,837,626 $  581,640
    Adjustments to reconcile net income to net cash         
      provided by (used in) operating activities: 
      Depreciation and amortization       4,219,426   4,198,197  4,457,778
      Deferred income taxes                  56,003    (346,582)  (199,209)
      Amortization of deferred gain
        on sale and leaseback            (1,868,340) (1,697,217)(1,302,992)
    Change in operating assets and liabilities:
        Accounts receivable               1,803,716     147,484  3,957,543
        Inventories                        (610,126) (3,184,439)   534,626
        Prepaid expenses                     32,858     213,237   (560,145)
        Other assets                       (300,000)    (27,639)
        Accounts payable - trade            145,153   1,899,283    722,576
        Accrued liabilities                (280,450)  3,726,055 (6,620,863)
                    
          Net cash provided by operating 
            activities                    3,407,650   6,766,005  1,570,954
                    
  CASH FLOWS FROM INVESTING ACTIVITIES:                
    Purchase of property, plant, 
      and equipment                      (9,658,193) (5,242,358)(2,528,970)
    Proceeds from sale of property, 
      plant, and equipment                5,295,000   4,820,027  5,040,000
                    
          Net cash provided by (used in)
            investing activities         (4,363,193)   (422,331) 2,511,030
                    
  CASH FLOWS FROM FINANCING ACTIVITIES:                
    Net decrease in short-term borrowings            (2,500,000)(9,000,000)
    Proceeds from long-term debt          4,897,019              8,093,095
    Principal payments on long-term debt   (338,855) (1,611,007)  (263,919)
    Principal payments on obligations
      under capital leases               (1,931,621) (2,237,721)(1,730,540)
    Proceeds from sale of capital stock     226,281     166,830    164,769
    Purchase of treasury stock             (335,523)    (79,816)   (54,035)
    Cash dividends                       (1,409,747) (1,312,739)(1,292,160)
               
          Net cash provided by (used in)
            financing activities          1,107,554  (7,574,453)(4,082,790)
               
  NET INCREASE (DECREASE) IN CASH            
    AND CASH EQUIVALENTS                    152,011  (1,230,779)      (806) 
  
  CASH AND CASH EQUIVALENTS AT               
    BEGINNING OF YEAR                     1,467,308  2,698,087   2,698,893
               
  CASH AND CASH EQUIVALENTS AT 
    END OF YEAR                         $ 1,619,319 $1,467,308  $2,698,087
</TABLE>
  
<TABLE>
                 (Continued)  
  ZIONS COOPERATIVE MERCANTILE INSTITUTION                              
                              
  STATEMENTS OF CASH FLOWS                             
  FOR THE YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997, AND FEBRUARY 3, 1996
                              
                                           1998        1997        1996
  SUPPLEMENTAL DISCLOSURES OF CASH                               
    INFORMATION:                             
    Cash paid during the year for:                          
      <S>                               <C>         <C>         <C>
      Interest                          $4,334,995  $4,434,585  $5,077,498
      Income taxes                       1,390,014     145,676   1,468,899
  
  SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING                            
    AND FINANCING ACTIVITIES:                                              
    Capital lease obligations incurred for the acquisition                
      of property under capital lease      481,248                    
    Deferred gain on sale and leaseback of property, plant,
      and equipment                        519,000   3,605,000  $2,050,948
    Transfer from long-term debt to short-term
      borrowings - banks                            10,000,000
    Transfer from short-term borrowings to long-term
      debt - banks                      10,000,000
    Increase (decrease) in accrued liabilities and
      corresponding decrease (increase) in stockholders'
      equity due to pension liability
      adjustment (Note 6)                  743,289     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)                 (278,733)    (61,125) (1,145,250)
  
</TABLE>
  
    See notes to financial statements.                (Concluded)            
  ZIONS COOPERATIVE MERCANTILE INSTITUTION
  NOTES TO FINANCIAL STATEMENTS
  FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1998
  
  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 $6,022,000 and $6,600,000
  higher at January 31, 1998 and February 1, 1997, 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 $23,680,000, $22,914,000, and
  $21,690,000 for the years ended January 31, 1998, February 1, 1997, and
  February 3, 1996, respectively.  Included in net sales and other income are
  finance charges on retail credit accounts receivable totaling approximately
  $5,669,000, $5,653,000, and $5,716,000 for the years ended January 31, 1998,
  February 1, 1997, and February 3, 1996, respectively.  Net sales and other
  income also include the amortization of deferred gain on sale and leaseback
  totaling approximately $1,868,000, $1,697,000, and $1,303,000 for the years
  ended January 31, 1998 February 1, 1997, and February 3, 1996, respectively
  (see Note 2).
  
  Income Taxes - ZCMI accounts for its taxes based on Statement of Financial
  Accounting Standards (SFAS) 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 Share - Effective January 31, 1998, ZCMI adopted SFAS
  No. 128, "Earnings Per Share," and retroactively restated its earnings per
  share for 1997 and 1996, to conform with the statement.  Accordingly, net
  income per common share is computed by both the basic method, which uses the
  weighted average number of ZCMI's common shares outstanding, and the diluted
  method, which includes the dilutive common shares from stock options, as
  calculated using the treasury stock method.  The amounts of such options are
  not significant and, accordingly, ZCMI's basic and dilutive earnings per
  share are the same.
  
  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.
  
  Financial Instruments - The carrying amounts reported in the balance sheets
  for cash and short-term investments approximate fair value because of the
  immediate or short-term maturity of these financial instruments.  The
  carrying amount of the long-term debt approximates fair value.
  
  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 67 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 January 31, 1998
  and February 1, 1997 is as follows (see Note 7):
<TABLE>
  
                                              1998          1997
  <S>                                    <C>           <C>
  Buildings and improvements             $ 15,747,559  $ 15,747,559
  Furniture, fixtures, and equipment        8,823,288    15,617,183   
  Total                                    24,570,847    31,364,742
  Less accumulated amortization            13,823,928    20,148,406
  Net assets under capital leases        $ 10,746,919  $ 11,216,336
</TABLE>
  
  Approximate future minimum lease payments on both capital and noncancelable
  operating leases at January 31, 1998 was as follows:
  
<TABLE>
       
                                      Capital    Operating      
                                       Leases      Leases
  Year ending:           
    <C>                            <C>           <C>
    1999                           $  3,306,201  $ 10,101,781
    2000                              3,051,015    10,221,233
    2001                              2,526,230     9,669,309
    2002                              2,121,220     7,908,961
    2003                              1,937,470     5,459,618
    Later years                      21,692,767    23,620,325
               
  Total minimum lease payments       34,634,903  $ 66,981,227
  Less amount representing interest  16,729,982
  
  Present value of net minimum
   lease payments                    17,904,921
  Less current portion                1,620,410
  
  Long-term portion                $ 16,284,511
</TABLE>
          
  
  Approximate total operating lease expense was as follows:
<TABLE>
  
                                                 Year Ended
                                         1998        1997         1996
  Minimum rentals on noncancelable                          
    <S>                              <C>          <C>          <C>
    operating leases                 $ 9,815,658  $ 9,520,162  $ 8,773,000
  Contingent rentals on noncancelable
    operating leases                     141,246       91,000       99,000
  Other operating lease expenses         177,939      139,000      696,000
  Total                             $ 10,134,843  $ 9,750,162  $ 9,568,000
  
</TABLE>
  
  Contingent rentals on capital leases, which were included in expense,
  totaled approximately $106,409, $274,000, and $251,000 for the years ended
  January 31, 1998, February 1, 1997, and February 3, 1996, respectively.
  
  During the years ended January 31, 1998, February 1, 1997, and February 3,
  1996, ZCMI sold certain furniture, fixtures, and equipment with a net book
  value of approximately $4,776,000, $1,215,000, and $2,989,000 for
  approximately $5,295,000, $4,820,000, and $5,040,000, respectively.  ZCMI
  agreed to lease back such furniture, fixtures, and equipment under operating
  lease agreements.  The resulting gains on sale for the years ended January
  31, 1998, February 1, 1997, and February 3, 1996 of approximately $519,000,
  $3,605,000, and $2,051,000, respectively, are being amortized over the lease
  terms ranging from 5 to 10 years.  Amortization of gains on all sale
  leasebacks for the years ended January 31, 1998, February 1, 1997, and
  February 3, 1996 totaled approximately $1,868,000, $1,697,000, and
  $1,303,000, respectively.
  
  3. INCOME TAXES
  
  ZCMI has recorded current and long-term deferred tax assets and deferred tax
  liabilities as of January 31, 1998 and February 1, 1997 as follows:
<TABLE>
                                  1998                     1997
                         Current     Long-Term     Current    Long-Term
  <S>                     <C>          <C>         <C>         <C>
  Deferred tax assets     $ 2,496,191  $ 1,444,466 $ 1,483,391 $ 2,630,077
  Deferred tax liabilities              (2,234,033)             (2,433,942)
  Total                   $ 2,496,191  $  (789,567)$ 1,483,391 $   196,135
</TABLE>
  
  Deferred tax assets and liabilities as of January 31, 1998 and February 1,
  1997 consisted of the following temporary differences and carryforward
  items:
<TABLE>
  
                                    1998                      1997
  Assets                     Current     Long-Term     Current    Long-Term
  <S>                      <C>         <C>           <C>        <C>
  Allowance for doubtful                          
    accounts receivable    $  482,108                $ 500,307
  Deferred gross profit on sale
    leaseback  transactions   679,758  $ 1,444,466              $ 2,630,077
  Accrued vacation expense
    not currently recognized                             
    for income tax purposes   281,974                  342,052
  Pension liability adj.      959,610                  573,359
  Other                        92,741                   67,673
  Total                    $2,496,191  $ 1,444,466  $1,483,391  $ 2,630,077
  
  Liabilities
  Net property, plant, and
    equipment for financial
    reporting in excess of tax
    basis                               $ (271,389)             $ (920,168)
  Capital and operating leases
    treated differently for
    income tax purposes                 (1,962,644)             (1,513,774)
  Total                       None     $(2,234,033)    None    $(2,433,942)
</TABLE>
  
  Computed "expected" income taxes on income for financial reporting purposes
  are reconciled to income tax expense as follows:
<TABLE>
                                                    Year Ended           
                                         1998           1997            1996
  <S>                                <C>            <C>             <C>
  Federal income taxes at the 
    statutory rate                   $ 117,270      $ 882,449       $274,327
  Increase (decrease) resulting from:
    State income taxes                  13,419        102,533         27,377
    Other                               (5,041)      (301,326)      (100,913)
  
  Income tax expense                 $ 125,648      $ 683,656       $200,791
  
  Consisting of:
  
  Current:
    Federal                           $ 62,207      $ 893,047      $357,280
    State                                7,438        137,191        42,720
  
    Total                               69,645      1,030,238       400,000
  
  Deferred:
    Federal                             50,022       (311,924)     (177,933)
    State                                5,981        (34,658)      (21,276)
  
    Total                               56,003       (346,582)     (199,209)
  
  Total expense                      $ 125,648      $ 683,656     $ 200,791
</TABLE>
  
  4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
  
  Short-term borrowings and long-term debt consisted of the following as of
  January 31, 1998 and February 1, 1997:
<TABLE>
  
                                                     1998         1997
  <S>                                            <C>          <C>
  Unsecured notes payable to banks under lines of credit,
    due at various dates through July 1999       $38,897,019  $34,000,000
  Mortgage note, 8%, due in monthly installments through
    February 2003                                  1,074,173    1,245,044
  Note payable, 10.255%, due in quarterly installments
    through December 2002                          1,173,047    1,341,031
          
  Total                                           41,144,239   36,586,075
  Less current portion                               372,250   10,340,041
  
  Long-term portion                              $40,771,989  $26,246,034
</TABLE>
  
  
  
  Interest rates on the borrowings under lines of credit are variable.  At
  January 31, 1998 and February 1, 1997, interest rates on these borrowings
  averaged 6.5% and 6.4%, respectively.
  
  Land and buildings with net book values of approximately $1,983,000 and
  $2,062,000 at January 31, 1998 and February 1, 1997, respectively, were
  pledged as collateral to the mortgage note.  Furniture, fixtures, and
  equipment with a net book value of approximately $1,223,017 at January 31,
  1998 were pledged as collateral on the note payable having a balance of
  $1,173,047 as of January 31, 1998.
  
  Short-term borrowings and long-term debt at January 31, 1998 matures as
  follows:
<TABLE>
  
                                                          Amount
  Year ending:      
    <C>                                               <C> 
    1999                                              $   372,250
    2000                                               39,285,503
    2001                                                  442,888
    2002                                                  484,999
    2003                                                  554,579
    Thereafter                                              4,020
          
    Total                                             $41,144,239
</TABLE>
  
  
  ZCMI had unused lines of credit available with various banks totaling
  approximately $15,103,000 at January 31, 1998.  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 $3,000,000.  Open
  letters of credit at January 31, 1998 amounted to approximately $585,549.
  
  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
                                               1998     1997      1996
  <S>                                          <C>      <C>      <C>
  Options outstanding - beginning of year      5,000    5,000    18,900
  Granted                          
  Exercised                             
  Forfeited                                   (5,000)           (13,900)
  
  Options outstanding - end of year            None     5,000     5,000
                              
  Options exercisable                          None     5,000     5,000
  
  Price of outstanding options                 N/A     $16.50    $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>
  
                                              Year Ended                   
                                        1998             1997     
                                  Number  Exercise   Number Exercise
                                of Shares  Price    of Shares Price
                         
  <S>                            <C>       <C>       <C>     <C>
  Outstanding - beginning
   of year                       124,000   $11.25            $ 11.25  
  Granted                                            124,000
  Canceled
  Exercised                       (1,550)  $11.25
                         
  Outstanding - end of year      122,450   $11.25    124,000  $11.25
                         
  Options exercisable            122,450              None
                         
  Remaining contractual life    8.6 years            9.6 years
                         
  Fair market value of options granted      $1.16              $1.67  
</TABLE>
  
  
  The following table summarizes information about stock options outstanding
  at January 31, 1998:
  
            Options Outstanding               Options Exercisable     
                          Weighted       Weighted
             Remaining     Average       Average
  Exercise     Number    Contractual     Exercise   Number       Exercise
  Price     Outstanding     Life         Price    Exercisable      Price
                              
  $11.25     122,450      8.58 years    $11.25      122,450       $11.25  
  
  
  ZCMI accounts for stock options granted using Accounting Principles Board
  Opinion No. 25.  Accordingly, no compensation cost has been recognized for
  its equity based incentive 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 SFAS No. 123, ZCMI's net
  income and earnings per common share would have changed to the pro forma
  amounts indicated below:
  
                                          Year Ended      Year Ended     
                                          January 31,      February 1,  
                                             1998             1997 
  Net income:            
    As reported                            $209,410        $1,837,626
    Pro forma                               192,894         1,824,564
                                   
  Earnings per common share:                                
    As reported                               $0.09             $0.84
    Pro forma                                  0.09              0.83
  
         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 in the years ended January 31,
199 and February 1, 1997.
  
                                                   Year Ended
                                           1998                  1997
  Dividend yield                           5.69 %                5.33 %
  Expected volatility                     15.80 %               17.29 %
  Risk free interest rate ranges     5.16% to 5.40%        6.14% to 6.57%  
  Expected lives ranges           1 year to 8 years  2.75 years to 10 years
  
  As part of the Equity-Based Incentive Plan, restricted stock awards were
  granted to certain officers of ZCMI.  Under this grant, 46,000 nonvested
  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 years ended January 31, 1998 and February 1, 1997,
  ZCMI recorded $68,625 and $66,625, respectively, 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 January 31, 1998,
  February 1, 1997, and February 3, 1996 were as follows:
<TABLE>
  
                                                     Year Ended          
                                           1998          1997       1996
  <S>                                  <C>          <C>         <C>
  Service cost - benefits earned
   during year                         $  565,653   $  567,000  $  445,000
  Interest cost on projected benefit
   obligation                           1,959,502    2,017,000   1,975,000
  Actual return on plan assets         (3,419,922)  (1,834,000) (3,522,000)
  Net amortization and deferral         1,181,437     (276,000)  1,500,000
                   
  Net periodic pension cost            $  286,670   $  474,000  $  398,000
</TABLE>
  
  Actuarial assumptions used at January 1, 1997, 1996, and 1995 to compute the
  above information were:
  
                                                   1997     1996     1995
  Weighted average discount rate                   7.0%     7.75%    9.0%
  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%
  
  
  
  The following table sets forth the funded status and amounts recognized in
  ZCMI's balance sheets at January 31, 1998 and February 1, 1997,
  respectively, as of the actuarial valuation dates shown:
<TABLE>
  
                                                    January 1,
                                               1998           1997  
  <S>                                     <C>             <C>
  Actuarial present value of benefit obligations:               
    Vested benefit obligation             $(27,653,624)   $(24,714,000)
  
    Accumulated benefit obligation        $(28,149,728)   $(25,097,000)
  
    Projected benefit obligation          $(29,044,871)   $(26,090,000)
    Plan assets at fair value               25,590,769      23,568,000
  
    Plan assets less than projected 
      benefit obligation                    (3,454,102)     (2,522,000)
    Unrecognized prior service costs          (104,831)       (197,000)
    Unrecognized net loss                    5,190,860       4,823,000
    Unrecognized net obligation at February 1, 1986                        
      being recognized over 15 years          (556,597)       (742,000)
    Additional liability for unfunded accumulated
      benefit obligation                    (3,634,289)     (2,891,000)
              
  Pension liability recognized in the
      balance sheet                       $ (2,558,959)   $ (1,529,000)
  
</TABLE>
  
  Actuarial assumptions used at January 1, 1998 and 1997 to compute the above
  information were:
  
                                             1998          1997
  Weighted average discount rate            7.00%          8.00%
  Rate of increase in compensation levels   4.00%          4.00%
  
  
  During the years ended January 31, 1998 and February 1, 1997, ZCMI
  recognized the additional minimum liability aspects of  SFAS No. 87,
  "Employers' Accounting for Pensions".   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 January 31,
  1998 and February 1, 1997, ZCMI recorded an increase to the pension
  liability of $743,299 and $163,000, respectively, and a decrease to
  stockholders' equity of $278,733 and $61,125, respectively.
  
  ZCMI has an employees' savings plan, which is a qualified, contributory
  savings plan based on Section 401(k) of the Internal Revenue Code.  Total
  ZCMI contributions for the years ended January 31, 1998, February 1, 1997,
  and February 3, 1996 were approximately $223,000, $214,000, and $204,000,
  respectively.  Under the plan, employees are also given the option to
  purchase ZCMI stock.  The 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 January 31, 1998, 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 $7,135,000 and $7,529,000 at January 31, 1998 and February 1,
  1997, respectively, are leased from a major stockholder under capital
  leases. Included in obligations under capital leases are approximately
  $13,524,618 and $13,768,000 at January 31, 1998 and February 1, 1997,
  respectively, pertaining to these leases.  Lease payments of approximately
  $1,906,000 were made on these leases for each of the years ended January 31,
  1998, February 1, 1997, and February 3, 1996.  Included in costs and
  expenses are transactions with companies in which a major ZCMI stockholder
  has a significant interest totaling approximately $3,694,576, $3,971,000,
  and $2,984,000 for the years ended January 31, 1998, February 1, 1997, and
  February 3, 1996, respectively.  Included in net sales are transactions with
  major ZCMI stockholders totaling approximately $399,500, $350,000, and
  $289,000 for the years ended January 31, 1998, February 1, 1997, and
  February 3, 1996, respectively.
  
  8.     RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
  
  In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
  No. 130, "Reporting Comprehensive Income".  SFAS No. 130 establishes
  standards for reporting and display of comprehensive income and its
  components (revenues, expenses, gains, and losses) in a full set of general
  purpose financial statements.  SFAS No. 130 requires that an enterprise (a)
  classify items of other comprehensive income by their nature in a financial
  statement and (b) display the accumulated balance of other comprehensive
  income separately from retained earnings and additional paid-in capital in
  the equity section of a statement of financial position.  SFAS No. 130 is
  effective for fiscal years beginning after December 15, 1997.  The adoption
  of SFAS No. 130 will require ZCMI to add disclosure to the financial
  statements about comprehensive income.
  
  In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
  an Enterprise and Related Information".  SFAS No. 131 established standards
  for the way that public business enterprises report information about
  operating segments in annual financial statements and requires that those
  enterprises report selected information about operating segments in interim
  financial reports issued to shareholders.  It also establishes standards for
  related disclosure about products and services, geographic areas, and major
  customers.  SFAS No. 131 is effective for financial statements for periods
  beginning after December 15, 1997.
  
                                     ******