<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-21526
ZALE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-0675400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 W. Walnut Hill Lane, Irving, Texas 75038-1003
(Address of principal executive offices) (Zip Code)
(214) 580-4000
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report.)
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 [ ].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X]. No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 30, 1995, 34,988,733 shares of the registrant's common stock
were outstanding.
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<PAGE> 2
ZALE CORPORATION AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Part 1. Financial Information: Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
</TABLE>
-2-
<PAGE> 3
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
--------------------------------------
1995 1994
--------------- -------------
<S> <C> <C>
Net Sales $ 214,274 $ 205,472
Cost of Sales 110,170 103,587
--------------- -------------
Gross Margin 104,104 101,885
Selling, General and Administrative Expenses 98,769 99,253
Depreciation and Amortization Expense (Credit) 1,075 (504)
Unusual Items - Reorganization Recoveries 4,486 ---
--------------- -------------
Operating Earnings 8,746 3,136
Interest Expense, Net 6,906 7,811
--------------- -------------
Earnings (Loss) Before Income Tax
Expense (Benefit) and Extraordinary Item 1,840 (4,675)
Income Tax Expense (Benefit) 653 (1,500)
--------------- -------------
Earnings (Loss) Before Extraordinary Item 1,187 (3,175)
Extraordinary Item:
Loss on Early Extinguishment of Debt, Net
of Income Tax Benefit of $(603) (1,096) ---
--------------- -------------
Net Earnings (Loss) $ 91 $ (3,175)
=============== =============
Earnings (Loss) Per Common Share:
Primary:
Earnings (Loss) Before Extraordinary Item $ 0.03 $ ( 0.09)
Extraordinary Item (0.03) ---
--------------- -------------
Net Earnings (Loss) $ 0.00 $ (0.09)
=============== =============
Assuming full dilution:
Earnings (Loss) Before Extraordinary Item $ 0.03 $ (0.09)
Extraordinary Item (0.03) ---
--------------- -------------
Net Earnings (Loss) $ 0.00 $ (0.09)
=============== =============
Weighted Average Number of Common
Shares Outstanding:
Primary 36,291 34,964
Assuming Full Dilution 36,339 34,964
</TABLE>
See Notes to the Consolidated Financial Statements.
-3-
<PAGE> 4
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1995 1995
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 72,728 $ 154,905
Customer Receivables, Net 392,656 396,380
Merchandise Inventories 494,928 375,413
Other Current Assets 32,553 23,859
------------- -----------
Total Current Assets 992,865 950,557
Property and Equipment, Net 83,516 71,487
Other Assets 39,866 39,864
Deferred Tax Asset, Net 48,800 48,800
------------ -----------
Total Assets $ 1,165,047 $ 1,110,708
============ ===========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
Current Liabilities:
Current Portion of Long-term Debt $ 1,739 $ 2,907
Notes Payable 28,600 ---
Accounts Payable and Accrued Liabilities 213,423 117,048
Deferred Tax Liability, Net 48,800 48,800
------------- -----------
Total Current Liabilities 292,562 168,755
Non-current Liabilities 33,493 32,670
Long-term Debt 380,705 440,717
Excess of Revalued Net Assets Over
Stockholders' Investment, Net 75,202 76,676
Commitments and Contingencies
Stockholders' Investment:
Preferred Stock --- ---
Common Stock 350 350
Additional Paid-In Capital (Includes
Stock Warrants) 333,384 337,534
Unrealized Gains on Securities 1,307 979
Accumulated Earnings 48,044 53,027
------------ -----------
Total Stockholders' Investment 383,085 391,890
------------ -----------
Total Liabilities and Stockholders' Investment $ 1,165,047 $ 1,110,708
============ ===========
</TABLE>
See Notes to the Consolidated Financial Statements.
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<PAGE> 5
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
------------ ------------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 91 $ (3,175)
Non cash expenses, gains and losses:
Depreciation and amortization expense (credit) 1,411 (221)
Tax benefit of interperiod loss --- (1,534)
Utilization of pre-emergence net operating loss 3 ---
Unusual item - reorganization recovery (3,000) ---
Other adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Extraordinary loss on early extinguishment of debt 1,699 ---
(Increase) decrease in:
Customer receivables, net 3,724 5,301
Merchandise inventories (119,515) (66,279)
Other current assets (5,694) (12,379)
Other assets 560 59
Increase (decrease) in:
Accounts payable and accrued liabilities 96,424 25,705
Non-current liabilities 823 78
----------- ----------
Net Cash Used in Operating Activities (23,474) (52,445)
----------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (15,160) (11,448)
Dispositions of property and equipment 367 1,012
Other 225 (8)
----------- ----------
Net Cash Used in Investing Activities (14,568) (10,444)
----------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (61,191) (936)
Net borrowings under revolving credit agreement 28,600 ---
Payment of redemption of Series B Warrants (9,264) ---
Payment of prepayment penalty and other related costs
on early extinguishment of debt (1,699) ---
Debt issue and capitalized financing costs (618) ---
Proceeds from exercise of stock options 37 ---
----------- ----------
Net Cash Used in Financing Activities (44,135) (936)
----------- ----------
Net Decrease in Cash and Cash Equivalents (82,177) (63,825)
----------- ----------
Cash and Cash Equivalents at Beginning of Period 154,905 153,700
----------- ----------
Cash and Cash Equivalents at End of Period $ 72,728 $ 89,875
=========== ==========
Supplemental cash flow information:
Interest paid $ 11,569 $ 10,853
Interest received $ 1,752 $ 1,746
Income taxes paid (net of refunds received) $ 378 $ 45
Restricted cash - at period end date $ 67,371 $ 59,684
</TABLE>
See Notes to the Consolidated Financial Statements.
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<PAGE> 6
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
Zale Corporation is the largest specialty retailer of fine jewelry in
the United States. Founded in 1924, the Company has 1,185 locations throughout
the U.S., Guam and Puerto Rico. The Company maintains its leadership in
jewelry sales through four distinct divisions consisting of the Zales Division,
with 542 stores, the Gordon's Division, with 333 stores, the Fine Jewelers
Guild Division, with 122 stores and Diamond Park Fine Jewelers, with 188 leased
fine jewelry departments.
The accompanying Consolidated Financial Statements are those of Zale
Corporation and its wholly-owned subsidiaries (the "Company" or "Zale") as of
and for the three months ended October 31, 1995. The Consolidated Financial
Statements are unaudited and have been prepared by the Company in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all material adjustments
and disclosures necessary for a fair presentation have been made. The
accompanying Consolidated Financial Statements should be read in conjunction
with the audited Consolidated Financial Statements and related notes thereto
included in the 1995 Annual Report to Stockholders filed as an exhibit to the
Company's Form 10-K for the fiscal year ended July 31, 1995. The
classifications in use at October 31,1995 have been applied to the financial
statements for July 31, 1995 and October 31, 1994.
The results of operations for the three month periods ended October
31, 1995 and 1994, are not indicative of the operating results for the full
fiscal year due to the seasonal nature of the Company's business. Seasonal
fluctuations in retail sales historically have resulted in higher earnings in
the quarter of the fiscal year which includes the Christmas selling season.
WORKING CAPITAL FINANCING
On August 11, 1995, Zale and Zale Delaware, Inc. ("ZDel") a
wholly-owned subsidiary of Zale, (the "Borrowers") entered into a new
three-year revolving credit agreement (the "Revolving Credit Agreement") which
provides for revolving credit loans in an aggregate amount of up to $150.0
million, with a $30.0 million sublimit for letters of credit. At no time may
the total amount of revolving credit loans outstanding exceed a defined
borrowing base (based on a fixed percentage of eligible inventory, as defined).
The Borrowers' obligations under the Revolving Credit Agreement are
primarily secured by a first lien on and security interest in all inventory
(excluding inventory on consignment).
The revolving credit loans bear interest at floating rates, currently
LIBOR + 2.0 percent or the agent's adjusted base rate + 0.75 percent, at the
Borrowers' option, and can be adjusted based on certain future performance
levels attained by the Borrowers. The Borrowers incur letter of credit fees
and also pay a commitment fee of 3/8 percent per annum on the preceding month's
unused Revolving Credit Agreement commitment. The Borrowers may repay the
revolving credit loans at any time without penalty. At October 31, 1995, there
were $28.6 million loans outstanding under the Revolving Credit Agreement.
There were approximately $4.3 million letters of credit outstanding at October
31, 1995.
The Revolving Credit Agreement contains certain restrictive covenants,
which, among other things, keeps within certain limits the Borrowers ability to
pay dividends and make other restricted payments, incur additional
indebtedness, engage in certain transactions with affiliates, incur liens, make
investments and sell assets. The Revolving Credit Agreement also requires the
Borrowers to maintain certain financial ratios and specified levels of net
worth.
-6-
<PAGE> 7
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
WORKING CAPITAL FINANCING (CONTINUED)
The increased flexibility allowed in the new Revolving Credit
Agreement enabled the Company to redeem early the $60.0 million 11.0 Percent
Second Priority Senior Secured Notes (the "Notes") on September 11, 1995
utilizing cash on hand. The Notes were optionally redeemable by ZDel at a
redemption price equal to 102 percent of their principal amount together with
accrued interest to the redemption date. Upon redemption, the Company paid an
early redemption premium and other costs associated with the redemption of
approximately $1.7 million resulting in an extraordinary item of $1.1 million,
net of an income tax benefit of $0.6 million, being recorded in the current
quarter.
REPURCHASE OF WARRANTS
As part of Zale's settlement of certain bankruptcy litigation in 1993
with Swarovski International Holding, A.G. ("Swarovski"), Zale issued its
Series B Warrants to purchase common stock. The Series B Warrants were
presently exercisable and, if not previously exercised, would expire on
September 9, 1998, subject to the Company's right to accelerate the expiration
date of the Series B Warrants if certain conditions were met. On August 31,
1995, Zale redeemed the Series B Warrants and acquired all Swarovski's rights,
title and interest under the warrant agreement and paid $9.3 million to
Swarovski in consideration of the redemption. As a result of this, the Series
B Warrants were canceled and are no longer outstanding. Additional Paid-In
Capital decreased $4.2 million, whereas Accumulated Earnings decreased $5.1
million due to this transaction.
UNUSUAL ITEMS - REORGANIZATION RECOVERIES
On July 30, 1993 (the "Effective Date"), Zale consummated its plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan") and emerged from bankruptcy. Pursuant to the Plan, Zale assigned
certain claims and causes of action and advanced $3.0 million to Jewel
Recovery, L.P., a limited partnership ("Jewel Recovery") which was formed upon
Zale's emergence from bankruptcy. The sole purpose of Jewel Recovery is to
prosecute and settle such assigned claims and causes of action. The general
partner of Jewel Recovery is Jewel Recovery, Inc., a subsidiary of the Company.
Its limited partners are holders of various prior unsecured claims against
Zale. The $3.0 million advance was fully reserved as of the Effective Date as
its collectibility was uncertain.
Jewel Recovery has pursued certain claims and has been awarded
significant recoveries against third parties. As a result, Jewel Recovery has
notified its limited partners that Zale will recover the $3.0 million advance
originally provided.
Additionally, Shawmut Bank ("Shawmut") was elected as Disbursement
Agent and held all cash and common stock to be used in settlements of creditors
claims. Shawmut recently provided Zale with information on creditors whose
claim rights have terminated. As a result, during the current quarter, Zale
recovered cash funds of approximately $1.5 million held by Shawmut related to
cash approved for distribution to pre-confirmation creditors of Zale but not
claimed by such pre-confirmation creditors. The $3.0 million and the $1.5
million recoveries were recorded as unusual items on the October 31, 1995
Consolidated Statements of Operations and had an after-tax impact of $0.08 per
share.
-7-
<PAGE> 8
ZALE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the
unaudited Consolidated Financial Statements of the Company (and the related
notes thereto) included in this report.
RESULT OF OPERATIONS
The following table sets forth operating results as a percentage of sales.
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------------------
1995 1994
----- -----
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 51.4 50.4
----- -----
Gross Margin 48.6 49.6
Selling, General and Administrative Expenses 46.1 48.3
Depreciation and Amortization Expense (Credit) 0.5 (0.2)
Unusual Items - Reorganization Recoveries 2.1 ---
----- -----
Operating Earnings 4.1 1.5
Interest Expense, Net 3.2 3.8
----- -----
Earnings (Loss) Before Income Tax
Expense (Benefit) and Extraordinary Item 0.9 (2.3)
Income Tax Expense (Benefit) 0.3 (0.7)
----- -----
Earnings (Loss) Before Extraordinary Item 0.6 (1.6)
Extraordinary Item:
Loss on Early Extinguishment of Debt, Net of
Income Tax Benefit (0.5) ---
----- -----
Net Earnings (Loss) 0.1% (1.6)%
===== =====
</TABLE>
THREE MONTHS ENDED OCTOBER 31, 1995 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1994
NET SALES. Net Sales for the three months ended October 31, 1995
increased by $8.8 million to $214.3 million, a 4.3 percent increase compared to
the previous year. Sales for stores open for comparable periods increased by
7.1 percent. The sales increase primarily resulted from continued improvement
in the implementation of a key item merchandising strategy, product-focused
marketing, improved execution in the stores and in-store promotion of clearance
merchandise.
GROSS MARGIN. Gross Margin as a percentage of sales decreased by 1.0
percent primarily from higher markdowns for clearance of discontinued
merchandise during the current quarter. The current year net LIFO provision
was $158,000 higher than last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, General and
Administrative Expenses decreased 2.2 percent. Store expenses decreased by 1.7
percent of sales as store occupancy costs and payroll increased at a lower rate
than sales. Promotional expenditures decreased as both a percentage of sales
and in total dollars. Corporate expenses decreased by 1.8 percent of sales
principally as a result of lower costs for outside services and insurance.
These improvements were offset by an increased provision for chargeoffs of
customer accounts.
-8-
<PAGE> 9
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION EXPENSE
(CREDIT), EXTRAORDINARY ITEM AND UNUSUAL ITEMS. Earnings Before Interest,
Taxes, Depreciation and Amortization Expense (Credit), Extraordinary Item and
Unusual Items were $5.3 million and $2.6 million for the three months ended
October 31, 1995 and 1994, respectively.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and Amortization
Expense increased by $1.5 million. Amortization of the Excess of Revalued Net
Assets Over Stockholders' Investment was $1.5 million in both periods.
However, depreciation and amortization of property and equipment increased from
$1.0 million to $2.5 million as new assets have been purchased since the fresh
start reporting writeoff of substantially all fixed assets of the Company at
July 31, 1993.
UNUSUAL ITEMS - REORGANIZATION RECOVERIES. Unusual Items -
Reorganization Recoveries were $4.5 million for the three month period ended
October 31, 1995. There were no unusual items for the prior year quarter. See
the note to the Consolidated Financial Statements "UNUSUAL ITEMS -
REORGANIZATION RECOVERIES."
INTEREST EXPENSE, NET. Interest Expense, Net was $6.9 million and
$7.8 million for the three months ended October 31, 1995 and 1994,
respectively. The decrease in interest expense for the three months ended
October 31, 1995 was principally due to the early redemption of the $60.0
million 11.0 Percent Second Priority Senior Secured Notes on September 11,
1995.
INCOME TAXES. The income tax expense (benefit) for the three month
periods ended October 31, 1995 and 1994 was $0.7 million and $(1.5) million,
respectively, reflecting an effective tax rate of 35.5 percent and 32.1
percent, respectively. As a result of guidelines regarding accounting for
income taxes of companies utilizing Fresh-Start reporting, the Company reports
earnings on a fully-taxed basis even though it does not expect to pay any
significant income taxes for the near future. The Company will realize the
cash benefit from utilization of the tax net operating loss ("NOL") against
current and future tax liabilities. As of October 31, 1995, the Company has a
NOL carryforward (after limitations) of approximately $378 million.
EXTRAORDINARY ITEM. The extraordinary item of $1.1 million, net of an
income tax benefit of $0.6 million, for the three month period ended October
31, 1995, was the result of the early redemption of the $60.0 million 11.0
Percent Second Priority Senior Secured Notes. See the note to the Consolidated
Financial Statements "WORKING CAPITAL FINANCING."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of funding
inventory and receivables growth, capital expenditures primarily for
renovations and new store growth, and debt service. As of October 31, 1995,
the Company had cash and cash equivalents of $72.7 million, including $67.4
million restricted primarily by the collateral requirements under the
Receivables Securitization Facility. The retail jewelry business is highly
seasonal, with a significant proportion of sales and operating income being
generated in November and December of each year. Approximately 41.2 percent
and 40.1 percent of the Company's annual sales were made during the three
months ended January 31, 1995 and 1994, respectively, which includes the
Christmas selling season. The Company's working capital requirements fluctuate
during the year, increasing substantially during the fall season as a result of
higher planned seasonal inventory levels.
Zale Funding Trust ("ZFT"), a limited purpose Delaware business trust
and wholly-owned by Zale Delaware, Inc. ("ZDel"), a wholly-owned subsidiary of
Zale, formed to finance customer accounts receivable, issued in July 1994
approximately $380.6 million, net of discount, aggregate principal amount of
Receivables Backed Notes ("ZFT Receivables Notes") pursuant to an accounts
receivable securitization facility (the "ZFT Securitization"). The ZFT
Receivables Notes are secured by a lien on all customer accounts receivable and
mature in July 1999.
-9-
<PAGE> 10
On August 11, 1995, Zale Corporation ("Zale") and ZDel (the
"Borrowers") entered into a new three-year revolving credit agreement (the
"Revolving Credit Agreement") which provides for revolving credit loans in an
aggregate amount of up to $150.0 million, with a $30.0 million sublimit for
letters of credit. At no time may the total amount of revolving credit loans
outstanding exceed a defined borrowing base (based on a fixed percentage of
eligible inventory, as defined).
The Revolving Credit Agreement was structured to increase the
Company's flexibility through less restrictive loan covenants, minimized
collateral requirements and a lower fee and interest rate structure. The
increased flexibility allowed in the new Revolving Credit Agreement combined
with the increased liquidity from the ZFT Securitization enabled the Company to
redeem its 11% notes, redeem the Series B Warrants and continue to invest in
its capital improvement and store growth initiatives.
The Company had approximately $60.0 million of Second Priority Senior
Secured Notes due 2000 bearing interest at 11.0 percent per annum that were
issued upon exit from bankruptcy. These notes were redeemed on September 11,
1995 utilizing cash on hand. Upon redemption, the Company paid an early
redemption premium and other costs associated with the redemption of
approximately $1.7 million. An extraordinary item of $1.1 million, net of an
income tax benefit of $0.6 million, was recorded in the current quarter. See
the note to the Consolidated Financial Statements "WORKING CAPITAL FINANCING."
On August 31, 1995, Zale redeemed the Series B Warrants and acquired
all Swarovski International Holding, A.G. ("Swarovski") rights, title and
interest under the warrant agreement and paid $9.3 million to Swarovski in
consideration of the redemption. As a result of this, the Series B Warrants
were canceled and are no longer outstanding. See the note to the Consolidated
Financial Statements "REPURCHASE OF WARRANTS."
The Company is in the second year of a three year store remodeling and
refurbishment program. This program will enable the Company to enhance its
stores in certain key markets relative to its competition. Additionally, the
Company plans significant upgrades to its management information systems over
the next two years. The Company anticipates spending approximately $50.0
million on capital expenditures in fiscal 1996. Capital expenditures are
typically scheduled for the late spring through early fall in order to have new
or renovated stores ready for the Christmas selling season. During the quarter
ended October 31, 1995, the Company made approximately $15.2 million capital
expenditures principally to enhance the appearance of 37 stores and the opening
of 15 new stores. The Company intends to open 250 new locations over the next
three years.
Over the last year the Company has shifted its merchandise mix to
reduce the amount of consigned merchandise and increase its investment in
owned merchandise. Although there has been an increase of approximately $28
million in owned merchandise inventories at October 31, 1995 compared to the
balance at October 31, 1994, the Company has comparable levels of merchandise
in the stores due to a reduction of approximately $42 million in the level of
consigned merchandise compared to last year. As a result of the transactions
discussed above and the change in merchandise mix, the Company had outstanding
borrowings of $28.6 million under the Revolving Credit Agreement at October 31,
1995.
Future liquidity will also be enhanced because the Company will
realize the cash benefit from utilization of NOL's against current and future
tax liabilities. Guidelines regarding accounting for income taxes of companies
utilizing Fresh-Start reporting, require the Company to report earnings on a
fully-taxed basis even though it does not expect to pay any significant income
taxes for the near future. As of October 31, 1995, the Company has a NOL
carryforward (after limitations) of approximately $378 million which
represents up to $147 million in future tax benefits. The utilization of this
asset is subject to limitations. The most restrictive is the Internal Revenue
Code Section 382 annual limitation. The NOL carryforward will begin to expire
in fiscal year 2002 but can be utilized through 2009.
Management believes that operating cash flow, amounts available under
the Revolving Credit Agreement and amounts available under the ZFT
Securitization should be sufficient to fund the Company's operating, debt
service and capital expenditure requirements for the foreseeable future.
INFLATION
In management's opinion, changes in net sales and earnings (loss)
before income taxes and extraordinary item that have resulted from inflation
and changing prices have not been material.
-10-
<PAGE> 11
Part II. - Other Information:
Item 4. Submission of Matters to a Vote of Security Holders
(a) On November 2, 1995, the Annual Meeting of Stockholders of the Company
was held in Dallas, Texas. There were 34,984,508 shares of common
stock outstanding on the record date and entitled to vote at the
Annual Meeting.
(b) The following directors were elected:
<TABLE>
<CAPTION>
Name of Nominee Votes For Votes Withheld
--------------- --------- --------------
<S> <C> <C>
Robert J. DiNicola 31,902,376 71,181
Larry Pollock 31,911,208 62,349
Glen Adams 31,906,725 66,832
Peter P. Copses 31,906,669 66,888
Frank E. Grzelecki 31,899,605 73,952
Richard C. Marcus 31,900,274 73,283
Andrew H. Tisch 31,908,895 64,662
</TABLE>
(c) The adoption of the Zale Corporation Outside Directors' 1995 Stock
Option Plan was ratified with 31,096,839 votes for, 761,508 votes
against, 92,323 abstentions and 22,887 broker non-votes.
(d) The appointment of Arthur Andersen LLP as Independent Public
Accountants for the fiscal year ending July 31, 1996 was ratified with
31,933,378 votes for, 14,118 votes against and 26,061 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
11 Statement re computation of per share earnings.
27 Financial data schedule.
(b) Form 8-K-
None.
-11-
<PAGE> 12
SIGNATURE
Pursuant to the requirements 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.
Zale Corporation
-----------------------------------
(Registrant)
Date December 8, 1995 /s/ MARK R. LENZ
------------------ -----------------------------------
Mark R. Lenz
Vice-President and Controller
(Duly authorized to sign on
behalf of the registrant and
principal accounting officer
of the registrant)
-12-
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number
- --------------
<S> <C>
11 Statement re computation of per share earnings.
27 Financial data schedule.
</TABLE>
<PAGE> 1
EXHIBIT 11
ZALE CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
(unaudited)
(amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
--------------------------------
1995 1994
------------ -----------
<S> <C> <C>
Primary:
Net earnings (loss) applicable to common stock $ 91 $ (3,175)
============ ===========
Shares
Weighted average number of common shares
outstanding 34,985 34,964
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise
of such options 582 ---
Assuming exercise of warrants reduced by
the number of shares which could have been
purchased with the proceeds from exercise
of such warrants 724 ---
------------ -----------
Weighted average number of common shares
outstanding as adjusted 36,291 34,964
============ ===========
Net earnings (loss) per common share $ --- $ (0.09)
============ ===========
Fully Diluted:
Net earnings (loss) applicable to common stock $ 91 $ (3,175)
============ ===========
Shares
Weighted average number of common shares
outstanding 34,985 34,964
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise
of such options 605 ---
Assuming exercise of warrants reduced by
the number of shares which could have been
purchased with the proceeds from exercise
of such warrants 749 ---
------------ -----------
Weighted average number of common shares
outstanding as adjusted 36,339 34,964
============ ===========
Net earnings (loss) per common share $ --- $ (0.09)
============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the October
31, 1995 consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> OCT-31-1995
<CASH> 72,728
<SECURITIES> 0
<RECEIVABLES> 392,656<F1>
<ALLOWANCES> 0
<INVENTORY> 494,928
<CURRENT-ASSETS> 992,865
<PP&E> 83,516<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,165,047
<CURRENT-LIABILITIES> 292,562
<BONDS> 380,705
<COMMON> 350
0
0
<OTHER-SE> 382,735
<TOTAL-LIABILITY-AND-EQUITY> 1,165,047
<SALES> 214,274
<TOTAL-REVENUES> 214,274
<CGS> 110,170
<TOTAL-COSTS> 110,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,906
<INCOME-PRETAX> 1,840
<INCOME-TAX> 653
<INCOME-CONTINUING> 1,187
<DISCONTINUED> 0
<EXTRAORDINARY> (1,096)
<CHANGES> 0
<NET-INCOME> 91
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>This asset value represents a net amount.
</FN>
</TABLE>
