<PAGE>
===============================================================================
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, 1998
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)
(972) 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 CORPORATE ISSUERS:
As of November 20, 1998, 35,857,155 shares of the registrant's common stock were
outstanding.
===============================================================================
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information:
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 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net Sales $ 254,186 $ 252,526
Cost of Sales 132,097 131,603
--------- ---------
Gross Margin 122,089 120,923
Selling, General and Administrative Expenses 105,286 107,939
Depreciation and Amortization Expense 6,472 4,798
Unusual Item- Gain on Sale of Diamond Park
Fine Jewelers Division --- (1,634)
--------- ---------
Operating Earnings 10,331 9,820
Interest Expense, Net 6,876 8,155
--------- ---------
Earnings Before Income Taxes 3,455 1,665
Income Taxes 1,292 619
--------- ---------
Net Earnings $ 2,163 $ 1,046
--------- ---------
--------- ---------
Earnings Per Common Share:
Basic $ 0.06 $ 0.03
Diluted $ 0.06 $ 0.03
Weighted Average Number of Common
Shares Outstanding:
Basic 36,066 35,230
Diluted 36,611 37,432
</TABLE>
See Notes to the Consolidated Financial Statements.
3
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
October 31, July 31, October 31,
1998 1998 1997
----------- ----------- -----------
(unaudited) (unaudited)
ASSETS<S> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 145,161 $ 173,069 $ 99,233
Restricted Cash 5,758 6,192 15,196
Customer Receivables, Net 488,199 495,468 455,697
Merchandise Inventories 585,640 478,467 572,051
Other Current Assets 31,108 26,720 29,961
----------- ----------- -----------
Total Current Assets 1,255,866 1,179,916 1,172,138
Property and Equipment, Net 172,628 162,884 147,692
Other Assets 46,187 44,326 46,798
Deferred Tax Asset, Net 58,803 58,803 52,700
----------- ----------- -----------
Total Assets $ 1,533,484 $ 1,445,929 $ 1,419,328
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
Current Liabilities:
Current Portion of Long-term Debt $ --- $ --- $ 12
Accounts Payable and Accrued Liabilities 294,260 187,621 248,160
Deferred Tax Liability, Net 20,800 20,800 23,700
----------- ----------- -----------
Total Current Liabilities 315,060 208,421 271,872
Non-current Liabilities 50,311 50,190 52,449
Long-term Debt 480,294 480,275 480,299
Excess of Revalued Net Asset Over
Stockholders' Investment, Net 57,507 58,982 63,405
Commitments and Contingencies
Stockholders' Investments:
Preferred Stock --- --- ---
Common Stock 384 380 374
Additional Paid-In Capital 482,062 477,657 409,190
Unrealized Gains on Securities 3,453 2,851 2,291
Accumulated Earnings 213,504 211,341 143,450
----------- ----------- -----------
699,403 692,229 555,305
Treasury Stock (69,091) (44,168) (4,002)
----------- ----------- -----------
Total Stockholders' Investment 630,312 648,061 551,303
----------- ----------- -----------
Total Liabilities and Stockholders' Investment $ 1,533,484 $ 1,445,929 $ 1,419,328
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to the Consolidated Financial Statements.
4
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
October 31, October 31,
1998 1997
----------- ------------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,163 $ 1,046
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization expense 6,784 5,190
Non-cash charge in lieu of tax expense 1,072 533
Unusual Item-Gain on Sale of Diamond Park Fine Jewelers Division --- (1,634)
Changes in:
Restricted cash 434 (6,183)
Customer receivables, net 7,269 (1,427)
Merchandise inventories (107,173) (108,782)
Other current assets (4,388) 7,307
Other assets (1,684) (109)
Accounts payable and accrued liabilities 106,639 101,121
Non-current liabilities 121 (1,095)
---------- ----------
Net Cash Provided by (Used in) Operating Activities 11,237 (4,033)
---------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (19,005) (20,230)
Dispositions of property and equipment 1,446 35
Net proceeds from the Sale of Diamond Park
Fine Jewelers Division --- 57,642
---------- ----------
Net Cash (Used in) Provided by Investing Activities (17,559) 37,447
---------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt --- (316)
Payments on revolving credit agreement --- (192,900)
Borrowings under revolving credit agreement --- 122,200
Proceeds from issuance of Senior Notes --- 99,530
Debt issue and capitalized financing costs --- (2,400)
Proceeds from exercise of stock options 3,337 7,082
Purchase of common stock (24,923) ---
---------- ----------
Net Cash (Used in) Provided by Financing Activities (21,586) 33,196
---------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents (27,908) 66,610
Cash and Cash Equivalents at Beginning of Period 173,069 32,623
---------- ----------
Cash and Cash Equivalents at End of Period $ 145,161 $ 99,233
---------- ----------
---------- ----------
Supplemental cash flow information:
Interest paid $ 11,096 $ 8,629
Interest received $ 2,670 $ 1,219
Income taxes paid (net of refunds received) $ 665 $ 156
</TABLE>
See Notes to the Consolidated Financial Statements.
5
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
Zale Corporation and its wholly owned subsidiaries (the "Company") is the
largest specialty retailer of fine jewelry in the United States. At October 31,
1998, the Company operated 1,138 retail jewelry stores located primarily in
shopping malls throughout the United States, Guam and Puerto Rico. The Company
operates three divisions: Zales-Registered Trademark-, Gordon's-Registered
Trademark-, and Bailey, Banks & Biddle-Registered Trademark-. The Zales Division
provides more traditional, moderately priced jewelry to a broad range of
customers. In addition, there are twelve Zales outlet stores in eight states.
The Gordon's Division offers contemporary merchandise targeted to regional
preferences at somewhat higher price points than Zales. The Bailey, Banks &
Biddle Division operates upscale jewelry stores which are considered among the
finest jewelry stores in their markets. In October 1997, the Company sold the
majority of the assets of its Diamond Park Fine Jewelers Division.
The accompanying Consolidated Financial Statements are those of the Company
as of and for the three month period ended October 31, 1998. The Company
consolidates substantially all its retail operations into Zale Delaware, Inc.
("ZDel"), a wholly owned subsidiary of Zale Corporation. ZDel is the parent
company for several subsidiaries, including three that are engaged primarily in
providing credit insurance to credit customers of the Company. All significant
intercompany transactions have been eliminated. 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 management's opinion, 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 Company's Form 10-K for the
fiscal year ended July 31, 1998. The classifications in use at October 31, 1998
have been applied to the financial statements for July 31, 1998 and October 31,
1997.
The results of operations for the three month period ended October 31, 1998
and 1997, 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.
EARNINGS PER COMMON SHARE
The Company adopted the provisions of the Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," for the quarter ended
January 31, 1998. SFAS No. 128 requires presentation of basic and diluted
earnings per share. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the reporting period. Diluted earnings per share reflect the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. All prior periods'
weighted average and per share information has been restated in accordance with
SFAS No. 128. Outstanding stock options and warrants issued by the Company
represent the only dilutive effect reflected in diluted weighted average shares.
There were antidilutive common stock equivalents of 1,284,000 and 19,000 for the
three months ended October 31, 1998 and October 31, 1997, respectively.
6
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- (CONTINUED)
EARNINGS PER COMMON SHARE (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------------------
1998 1997
---------- ----------
(amounts in thousands, except
per share amounts)
<S> <C> <C>
Net earnings available to shareholders $ 2,163 $ 1,046
BASIC:
Weighted average number of common shares outstanding 36,066 35,230
Earnings per common share - basic $ 0.06 $ 0.03
---------- ----------
---------- ----------
DILUTED:
Weighted average number of common shares outstanding 36,066 35,230
Effect of dilutive securities:
Stock options 545 1,065
Warrants --- 1,137
---------- ----------
Weighted average number of common shares outstanding as adjusted 36,611 37,432
Earnings per common share - diluted $ 0.06 $ 0.03
---------- ----------
---------- ----------
</TABLE>
STOCK REPURCHASE PLAN
On August 25, 1998, the Board of Directors authorized a stock repurchase
program pursuant to which the Company, from time to time and at management's
discretion, may purchase through fiscal year 1999 up to an aggregate of $50.0
million of the Company's common stock on the open market. As of October 31,
1998, the Company had repurchased approximately 1.0 million shares at an
aggregate cost of $24.9 million.
COMPREHENSIVE INCOME
Effective August 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income is defined as
the change in equity during a period from transactions and other events, except
those resulting from investments by and distributions to stockholders.
The components of comprehensive income for the three month periods ended October
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
October 31, October 31,
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Net Earnings $ 2,163 $ 1,046
Other Comprehensive Income - Unrealized gains on investment
securities - net 602 109
---------- ----------
Total Comprehensive Income $ 2,765 $ 1,155
---------- ----------
---------- ----------
</TABLE>
7
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On September 23, 1997, the Company sold $100 million in aggregate principal
amount of 8 1/2% Senior Notes (the "Senior Notes") due 2007 by means of an
offering memorandum to qualified institutional buyers under Rule 144A
promulgated under the Securities Act of 1933, as amended.
The Company's payment obligations under the Senior Notes are guaranteed by
ZDel (the "Guarantor Subsidiary"). Such guarantee is full and unconditional with
respect to ZDel. Zale Funding Trust ("ZFT"), a limited purpose Delaware business
trust wholly owned by ZDel which owns the customer accounts receivable of ZDel,
is not a guarantor of the obligations under the Senior Notes. Separate financial
statements of the Guarantor Subsidiary are not presented because the Company's
management has determined that they would not be material to investors. The
following supplemental financial information sets forth, on an unconsolidated
basis, statements of operations, balance sheet, and statements of cash flow
information for the Company ("Parent Company Only"), for the Guarantor
Subsidiary and for the Company's other subsidiaries (the "Non-Guarantor
Subsidiaries"). The supplemental financial information reflects the investments
of the Company and the Guarantor Subsidiary in the Guarantor and Non-Guarantor
Subsidiaries using the equity method of accounting. Certain reclassifications
have been made to provide for uniform disclosure of all periods presented. These
reclassifications are not material.
8
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION --(CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended October 31, 1998
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ --- $ 249,320 $ 4,866 $ --- $ 254,186
Cost of Sales --- 129,770 2,327 --- 132,097
--------- --------- --------- --------- ---------
Gross Margin --- 119,550 2,539 --- 122,089
Selling, General, and Administrative
Expenses (Income) 38 115,716 (10,468) --- 105,286
Depreciation and Amortization Expense --- 6,122 350 --- 6,472
--------- --------- --------- --------- ---------
Operating Earnings (Loss) (38) (2,288) 12,657 --- 10,331
Interest Expense, Net --- (3,025) 9,901 --- 6,876
--------- --------- --------- --------- ---------
Earnings (Loss) Before Income Taxes (38) 737 2,756 --- 3,455
Income Taxes (Benefit) (14) 275 1,031 --- 1,292
--------- --------- --------- --------- ---------
Earnings (Loss) Before Equity in
Earnings of Subsidiaries (24) 462 1,725 --- 2,163
Equity in Earnings of Subsidiaries 2,187 1,725 --- (3,912) ---
--------- --------- --------- --------- ---------
Net Earnings $ 2,163 $ 2,187 $ 1,725 $ (3,912) $ 2,163
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
9
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION --(CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended October 31, 1997
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ --- $ 248,236 $ 4,290 $ --- $ 252,526
Cost of Sales --- 129,450 2,153 --- 131,603
--------- ---------- ----------- ----------- ----------
Gross Margin --- 118,786 2,137 --- 120,923
Selling, General, and Administrative
Expenses (Income) 38 114,169 (6,268) --- 107,939
Depreciation and Amortization Expense --- 4,502 296 --- 4,798
Unusual Item- Gain on Sale of Diamond
Park Fine Jewelers Division --- (1,634) --- --- (1,634)
--------- ---------- ----------- ----------- ----------
Operating Earnings (Loss) (38) 1,749 8,109 --- 9,820
Interest Expense, Net --- (597) 8,752 --- 8,155
--------- ---------- ----------- ----------- ----------
Earnings (Loss) Before Income Taxes (38) 2,346 (643) --- 1,665
Income Taxes (Benefit) (14) 872 (239) --- 619
--------- ---------- ----------- ----------- ----------
Earnings (Loss) Before Equity in
Earnings of Subsidiaries (24) 1,474 (404) --- 1,046
Equity in Loss of Subsidiaries 1,070 (403) --- (667) ---
--------- ---------- ----------- ----------- ----------
Net Earnings (Loss) $ 1,046 $ 1,071 $ (404) $ (667) $ 1,046
--------- ---------- ----------- ----------- ----------
--------- ---------- ----------- ----------- ----------
</TABLE>
10
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION-- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
October 31, 1998
(unaudited)
(amounts in thousands)
ASSETS
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents $ --- $ 136,813 $ 8,348 $ --- $ 145,161
Restricted Cash --- 1,281 4,477 --- 5,758
Customer Receivables, Net --- --- 488,199 --- 488,199
Merchandise Inventories --- 573,913 11,727 --- 585,640
Other Current Assets --- 28,765 2,343 --- 31,108
---------- ------------ ---------- ----------- -----------
Total Current Assets --- 740,772 515,094 --- 1,255,866
Investment in Subsidiaries 630,435 54,892 --- (685,327) ---
Property and Equipment, Net --- 168,485 4,143 --- 172,628
Intercompany Receivable 100,700 --- --- (100,700) ---
Other Assets --- 10,223 35,964 --- 46,187
Deferred Tax Assets, Net 58 58,742 3 --- 58,803
---------- ------------ ---------- ----------- -----------
Total Assets $ 731,193 $ 1,033,114 $ 555,204 $ (786,027) $ 1,533,484
---------- ------------ ---------- ----------- -----------
---------- ------------ ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Portion of Long-term Debt $ --- $ --- $ --- $ --- $ ---
Accounts Payable and Accrued
Liabilities 671 291,684 1,905 --- 294,260
Deferred Tax Liability, Net 646 20,154 --- --- 20,800
---------- ------------ ---------- ----------- -----------
Total Current Liabilities 1,317 311,838 1,905 --- 315,060
Non-current Liabilities --- 38,420 11,891 --- 50,311
Intercompany Payable --- 2,962 97,738 (100,700) ---
Long-term Debt 99,564 --- 380,730 --- 480,294
Excess of Revalued Net Assets Over
Stockholders' Investment, Net --- 57,507 --- --- 57,507
Total Stockholders' Investment 630,312 622,387 62,940 (685,327) 630,312
---------- ------------ ---------- ----------- -----------
Total Liabilities and Stockholders'
Investment $ 731,193 $ 1,033,114 $ 555,204 $ (786,027) $ 1,533,484
---------- ------------ ---------- ----------- -----------
---------- ------------ ---------- ----------- -----------
</TABLE>
11
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION-- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
July 31, 1998
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- -------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents $ --- $ 165,248 $ 7,821 $ --- $ 173,069
Restricted Cash --- 1,541 4,651 --- 6,192
Customer Receivables, Net --- --- 495,468 --- 495,468
Merchandise Inventories --- 468,076 10,391 --- 478,467
Other Current Assets --- 24,502 2,218 --- 26,720
---------- ---------- ---------- ---------- ----------
Total Current Assets --- 659,367 520,549 1,179,916
Investment in Subsidiaries 648,160 52,493 --- (700,653) ---
Property and Equipment, Net --- 158,807 4,077 --- 162,884
Intercompany Receivable 102,801 495 --- (103,296) ---
Other Assets --- 10,493 33,833 --- 44,326
Deferred Tax Assets, Net 59 58,741 3 --- 58,803
---------- ---------- ---------- ---------- ----------
Total Assets $ 751,020 $ 940,396 $ 558,462 $ (803,949) $1,445,929
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Portion of Long-term Debt $ --- $ --- $ --- $ --- $ ---
Accounts Payable and Accrued
Liabilities 2,758 182,725 2,138 --- 187,621
Deferred Tax Liability, Net 646 20,154 --- --- 20,800
---------- ---------- ---------- ---------- ----------
Total Current Liabilities 3,404 202,879 2,138 --- 208,421
Non-current Liabilities --- 38,420 11,770 --- 50,190
Intercompany Payable --- --- 103,296 (103,296) ---
Long-term Debt 99,555 --- 380,720 --- 480,275
Excess of Revalued Net Assets
Over Stockholders' Investment, Net --- 58,982 --- --- 58,982
Total Stockholders' Investment 648,061 640,115 60,538 (700,653) 648,061
---------- ---------- ---------- ---------- ----------
Total Liabilities and Stockholders'
Investment $ 751,020 $ 940,396 $ 558,462 $ (803,949) $1,445,929
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
12
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended October 31, 1998
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in) Operating Activities $ 21,586 $ (11,247) $ 2,444 $(1,546) $ 11,237
Net Cash Flows from Investing Activities:
Additions to property and equipment --- (18,634) (371) --- (19,005)
Dispositions of property and equipment --- 1,446 --- --- 1,446
-------- --------- ------- ------- --------
Net Cash Provided by (Used in) Investing Activities --- (17,188) (371) --- (17,559)
-------- --------- ------- ------- --------
Net Cash Flows from Financing Activities:
Proceeds from exercise of stock options 3,337 --- --- --- 3,337
Purchase of common stock (24,923) --- --- --- (24,923)
Dividends Paid --- --- (1,546) 1,546 ---
-------- --------- ------- ------- --------
Net Cash Used in Financing Activities (21,586) --- (1,546) 1,546 (21,586)
-------- --------- ------- ------- --------
Net (Decrease) Increase in Cash and Cash
Equivalents --- (28,435) 527 --- (27,908)
Cash and Cash Equivalents at Beginning of Period --- 165,248 7,821 --- 173,069
-------- --------- ------- ------- --------
Cash and Cash Equivalents at End of Period $ --- $ 136,813 $ 8,348 $ --- $145,161
-------- --------- ------- ------- --------
-------- --------- ------- ------- --------
</TABLE>
13
<PAGE>
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended October 31,1997
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in) Operating $ (7,082) $ 2,854 $(1,000) $ 1,195 $ (4,033)
Activities
Net Cash Flows from Investing Activities:
Additions to property and equipment --- (20,074) (156) --- (20,230)
Dispositions of property and equipment --- 35 --- --- 35
Proceeds from Sale of Diamond Park Fine
Jewelers Division --- 57,642 --- --- 57,642
-------- --------- ------- ------- ---------
Net Cash Provided by (Used in) Investing Activities --- 37,603 (156) --- 37,447
-------- --------- ------- ------- ---------
Net Cash Flows from Financing Activities:
Payments on long-term debt --- (316) --- --- (316)
Payments on revolving credit agreement --- (192,900) --- --- (192,900)
Borrowings under revolving credit agreement --- 122,200 --- --- 122,200
Proceeds from issuance of Senior Notes 99,530 --- --- --- 99,530
Loan from Zale Corp to Zale Delaware (99,530) 99,530 --- --- ---
Debt issue and capitalized financing costs --- (2,400) --- --- (2,400)
Proceeds from exercise of stock options and 7,082 --- --- --- 7,082
warrants
Proceeds from issuance of common stock --- --- 2,500 (2,500) ---
Dividends paid --- --- (1,305) 1,305 ---
-------- --------- ------- ------- ---------
Net Cash Provided by (Used in) Financing Activities 7,082 26,114 1,195 (1,195) 33,196
-------- --------- ------- ------- ---------
Net Increase in Cash and Cash Equivalents --- 66,571 39 --- 66,610
Cash and Cash Equivalents at Beginning of Period --- 24,014 8,609 --- 32,623
-------- --------- ------- ------- ---------
Cash and Cash Equivalents at End of Period $ --- $ 90,585 $ 8,648 $ --- $ 99,233
-------- --------- ------- ------- ---------
-------- --------- ------- ------- ---------
</TABLE>
14
<PAGE>
ITEM 2.
ZALE CORPORATION AND SUBSIDIARIES 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 elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth certain financial information from the
Company's unaudited Consolidated Statements of Operations expressed as a
percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Net Sales 100% 100%
Cost of Sales 52.0 52.1
---- ----
Gross Margin 48.0 47.9
Selling, General and Administrative Expenses 41.4 42.7
Depreciation and Amortization Expense 2.5 1.9
Unusual Item- Gain on Sale of Diamond Park
Fine Jewelers Division Assets --- 0.6
---- ----
Operating Earnings 4.1 3.9
Interest Expense, Net 2.7 3.2
---- ----
Earnings Before Income Taxes 1.4 0.7
Income Taxes 0.5 0.3
---- ----
Net Earnings 0.9 0.4
---- ----
---- ----
</TABLE>
THREE MONTHS ENDED OCTOBER 31, 1998 COMPARED TO THREE MONTHS ENDED OCTOBER
31, 1997
NET SALES. Net Sales for the three months ended October 31, 1998
increased by $1.7 million to $254.2 million, a 0.7 percent increase compared
to the previous year. The previous year's quarter included sales from 186
Diamond Park Fine Jewelry ("Diamond Park") stores operated by the Company.
The Company divested 139 Diamond Park stores as of October 6, 1997 and 47
additional Diamond Park stores as of January 31, 1998. Excluding sales from
the Diamond Park Fine Jewelers Division, total sales for the quarter
increased 8.3 percent. Sales increased largely due to comparable store sales
growth of 4.7 percent, as well as sales from new stores added during the last
twelve months. The Company believes that the sales growth was influenced by
enhanced merchandise assortments, successful product promotions and strong
store level execution.
GROSS MARGIN. Gross Margin as a percentage of net sales increased by 0.1
percent for the three month period ending October 31, 1998, compared to the
same period last year. There was no LIFO provision required for the three
months ended October 31, 1998. The LIFO provision was $ 0.7 million for the
three months ended October 31, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, General and
Administrative Expenses decreased 1.3 percent as a percentage of net sales,
principally due to lower bad debt expense as a percent of sales and a
reduction in promotional expense. The reduction in promotional expense is a
result of a planned shift of promotional activities to the second quarter.
The decrease is also related to the divestiture of the Diamond Park
Operations, which had significantly higher payroll and rent costs as a
percentage of sales.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION EXPENSE,
AND UNUSUAL ITEMS. As a result of the factors discussed above, Earnings
Before Interest, Taxes, Depreciation and Amortization Expense, and Unusual
Items were $16.8 million and $12.9 million for the three months ended October
31, 1998 and 1997, respectively.
15
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and Amortization
Expense increased by $1.7 million, primarily as a result of the purchase of
new assets, principally for new store openings, renovations and
refurbishments. Due to fresh-start reporting, the Company wrote-off
substantially all fixed assets of the Company effective July 31, 1993. As a
result, depreciation and amortization relates to capital expenditures since
July 31, 1993.
UNUSUAL ITEM - GAIN ON SALE OF DIAMOND PARK FINE JEWELERS DIVISION.
Unusual Item - Gain on Sale of Diamond Park Fine Jewelers Division was $1.6
million for the three months ended October 31, 1997.
INTEREST EXPENSE, NET. Interest Expense, Net was $6.9 million and $8.2
million for the three months ended October 31, 1998 and 1997, respectively.
The decrease is a result of higher interest income from investments due to an
increase in cash and cash equivalents. The increase in cash and cash
equivalents is primarily due to an increase in net earnings, effective
inventory management and the leveraging of accounts payable and accrued
liabilities.
INCOME TAXES. The income tax provision for the three month periods ended
October 31, 1998 and 1997 was $1.3 million and $0.6 million, respectively,
reflecting an effective tax rate of 37.4 percent and 37.2 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 has not paid significant income taxes
subsequent to the adoption of fresh-start reporting. The Company expects to
begin paying more significant taxes in fiscal 1999. The Company will realize
a cash benefit from utilization of tax net operating loss carryforward
("NOL") (after limitations) against current and future tax liabilities. As of
July 31, 1998, the Company had a remaining NOL (after limitations) of
approximately $250.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of funding inventory
and receivables growth, capital expenditures primarily for new store growth
and renovations, upgrading its management information systems and debt
service. As of October 31, 1998, the Company had cash and cash equivalents of
$145.2 million, and $5.8 million of restricted cash. Restricted cash includes
the collateral requirements under the Receivables Securitization Facility
established by the Company in July 1994 (the "Receivables Securitization
Facility") and the capital requirements of the Company's national bank
established by the Company in October 1997. 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 39.7%
and 40.3% of the Company's annual sales were made during the three months
ended January 31, 1998 and 1997, 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.
The Company, through Zale Funding Trust ("ZFT"), a limited purpose
Delaware business trust wholly owned by Zale Delaware, Inc. ("ZDel") and
formed to finance customer accounts receivable, has approximately $380.7
million, net of discount, aggregate principal amount of Receivables Backed
Notes ("ZFT Receivables Notes" or "Notes") issued and outstanding at October
31, 1998 pursuant to the Receivables Securitization Facility. The ZFT
Receivables Notes are secured by a lien on all customer accounts receivable
and are scheduled for redemption on July 15, 1999 or may be amortized based
on account payments received. The Company expects to redeem the Notes through
a refinancing transaction during fiscal 1999. The Notes are classified as
non-current at October 31, 1998 as the balance potentially due within the
next twelve months can be paid with borrowings under the Company's Revolving
Credit Agreement which are considered non-current.
In order to support the Company's longer-term capital financing
requirements, the Company issued $100 million of Senior Notes ("the Senior
Notes") on September 23, 1997. These notes bear interest at 8 1/2% and are
due in 2007. The Senior Notes are unsecured and are fully and unconditionally
guaranteed by ZDel. The proceeds were utilized to repay indebtedness under
the Company's Revolving Credit Agreement and for general corporate purposes.
The indenture relating to the Senior Notes contains certain restrictive
covenants including but not limited to, limitations on indebtedness,
limitations on dividends and other restricted payments (including repurchases
of the Company's common stock), limitations on transactions with affiliates,
limitations on liens and limitations on disposition of proceeds of asset
sales among others.
16
<PAGE>
In order to support the Company's seasonal financing needs, the Company
entered into a three year unsecured revolving credit agreement (the
"Revolving Credit Agreement") with a group of banks on March 31, 1997. The
Revolving Credit Agreement provides for revolving credit loans in an
aggregate amount of up to $225.0 million, including a $30.0 million sublimit
for letters of credit. At October 31, 1998, there were no loans outstanding
under the Revolving Credit Agreement. Letters of credit in the amount of
approximately $0.4 million were outstanding at October 31, 1998. The Company
is currently in compliance with all of its covenant obligations under the
Revolving Credit Agreement and the instruments governing its other
indebtedness.
Under its growth strategy, the Company plans to open approximately 156
new stores, for which it will incur approximately $44 million in capital
expenditures during the combined fiscal years 1999 and 2000. These stores are
expected to solidify the Company's core mall business by further penetrating
markets where the Company is underrepresented. In the first three months of
fiscal 1999, the Company opened 14 of these new stores.
Since fiscal 1994, the Company has opened, remodeled or refurbished
nearly 70 percent of its store base. During the combined fiscal years 1999
and 2000, the Company anticipates spending approximately an additional $44
million to remodel and refurbish approximately 240 more stores. The Company
also estimates it will make capital expenditures of approximately $18 million
during the combined fiscal years 1999 and 2000 for enhancements to its
management information systems. In total, the Company anticipates spending
approximately $136.8 million on capital expenditures during the combined
fiscal years 1999 and 2000.
There has been an increase of approximately $107 million in owned
merchandise inventories at October 31, 1998 compared to the balance at July
31, 1998. The increase of inventory levels is principally the result of
seasonality and new store growth as well as expansion in the depth and
breadth of merchandise available in the stores to accommodate increasing
sales.
On August 25, 1998, the Board of Directors authorized a stock repurchase
program pursuant to which the Company, from time to time and at management's
discretion, may purchase through fiscal year 1999 up to an aggregate of $50.0
million of the Company's common stock on the open market. As of October 31,
1998, the Company had repurchased approximately 1.0 million shares at an
aggregate cost of $24.9 million.
Future liquidity will be enhanced to the extent that the Company is able
to realize the cash benefit from utilization of its NOL against current and
future tax liabilities. The cash benefit realized in fiscal year 1998 was
approximately $38.0 million. 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 has not paid significant
income taxes subsequent to the adoption of fresh-start reporting. The Company
expects to begin paying more significant income taxes in fiscal year 1999. As
of July 31, 1998, the Company had a NOL (after limitations) of approximately
$250.8 million, which represents up to $98.0 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 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, the Receivables Securitization Facility, and
net proceeds from the Senior Notes Offering should be sufficient to fund the
Company's current operations, debt service, currently anticipated capital
expenditure requirements and the stock repurchase program requirements for
the foreseeable future.
17
<PAGE>
YEAR 2000
The Company's management has recognized the need to ensure that its
operations and relationships with vendors and other third parties will not be
adversely impacted by software processing errors arising from calculations
using the year 2000 and beyond ("Year 2000"). Like those of many companies, a
significant number of Zale's computer applications and systems required
modification to render them Year 2000 compliant. The Company recognizes that
failure by the Company to timely resolve internal Year 2000 issues could
result, in the worst case, in an inability of the Company to distribute its
merchandise to its stores and to process its daily business for some period
of time. However, Company management presently believes that scenario is
unlikely based on the progress made in its Year 2000 remediation plan.
Failure of one or more third party service providers on whom the Company
relies to address Year 2000 issues could also result, in a worst case
scenario, in some business interruption. The lost revenues, if any, resulting
from a worst case scenario such as those examples described above would
depend on the time period in which the failure goes uncorrected and on how
widespread the impact.
Zale is using a combination of internal and external resources to make
needed changes to its many different information technology ("IT") systems
and personal computers, such as credit, point of sale, payroll, purchase
ordering, merchandise distribution, management reporting, mainframe, and
client/server applications. A formal project began in 1997 to inventory all
the specialized software programs and hardware used in the Company's
business. The inventory is substantially complete and renovation is currently
underway. Non-compliant programs and systems are being replaced, modified or
outsourced throughout 1998 and the first half of 1999. Testing continues and
will be substantially complete by July 31, 1999. The Company has
communicated, and will continue to communicate, with its suppliers, financial
institutions and others with which it does business to monitor and evaluate
Year 2000 conversion progress. Progress reports on the Year 2000 project are
presented regularly to the Company's Board of Directors and senior management.
With regard to non-IT systems, such as the General Office security
systems, store security systems, environmental systems, and phone systems,
the Company has evaluated the compliance of such systems. Systems that are
not compliant will be remediated, upgraded or replaced by July 31, 1999.
Beginning in June 1998, the Company sent approximately 3,000 inquiries
to its vendors requesting compliance certification. The Company has collected
responses to those inquiries. It is in the process of following-up with those
material vendors who either did not respond or whose response was
insufficient. The Company outsources or will outsource its MIS processing and
credit processing and inquiry. These outsourcers have contractually committed
to Year 2000 compliance and are diligently pursuing that commitment. The
Company's primary delivery service provider has stated that its goal is to be
Year 2000 compliant by May 31, 1999. The Company's payroll processing service
provider has indicated that its major systems will operate with correct date
logic for Year 2000.
Direct expenditures were approximately $1.7 million and internal costs
were approximately $0.5 million, for a total cost of $2.2 million in
expenditures associated with the Year 2000 in fiscal year 1998. Direct costs
of $3.5 million and internal costs of $0.9 million, for a total cost of $4.4
million, are expected in fiscal year 1999. The Company will fund these
expenditures through its normal IT operations budget. As required by
generally accepted accounting principles, these costs are expensed as
incurred.
The Company has had each of its departments or divisions develop basic
contingency plans to restore the material functions of each of its systems or
activities in the case of a Year 2000 failure. The contingency plans cover
all material levels of activity within each business location, including the
stores, the General Office, the credit centers and third party service
providers. The Company plans to continually refine these plans and make them
more comprehensive as more information becomes available from testing and
from third party suppliers. In addition, the Company's two processing
outsourcers also have contingency plans for the Company's processing should
their primary systems fail.
18
<PAGE>
Additionally, in the normal course of business, the Company has made
capital investments in certain third party software and hardware systems to
address the financial and operational needs of the business. These systems,
which will improve the efficiencies and productivity of the replaced systems,
have also been certified Year 2000 compliant by the vendors and have been or
will be installed by July 31, 1999. To date all of these capital projects
were part of the Company's long term strategic capital plan and their timing
has not been accelerated as a result of the Year 2000 issue.
Although there can be no assurance that the Company will be able to
complete all of the modifications in the required time frame, that
unanticipated events will not occur, or that the Company will be able to
identify all Year 2000 issues before problems manifest themselves, it is
management's belief that the Company is taking adequate action to address
Year 2000 issues. Management does not expect the financial impact of being
Year 2000 compliant to be material to the Company's consolidated financial
position, results of operations or cash flows.
INFLATION
In management's opinion, changes in Net Sales and Net Earnings that have
resulted from inflation and changing prices have not been material. There is
no assurance, however, that inflation will not materially affect the Company
in the future.
This Management's Discussion and Analysis contains forward-looking
statements, including statements concerning expected capital expenditures to
be made in the future, expected significant upgrades to the Company's
management information systems over the next several years, the addition of
new locations through either new store openings or strategic acquisitions,
the renovation and remodeling of the Company's existing store locations, the
expected impact of the "Year 2000" issue, and the adequacy of the Company's
sources of cash to finance its current and future operations. These
forward-looking statements involve a number of risks and uncertainties. In
addition to the factors discussed above, among other factors that could cause
actual results to differ materially are the following: the impact of general
economic conditions due to the fact that jewelry purchases are discretionary
for consumers and may be affected by adverse trends in the general economy;
competition in the fragmented retail jewelry business; the variability of
quarterly results and seasonally of the retail business; the ability to
improve productivity in existing stores and to increase comparable store
sales; the availability of alternate sources of merchandise supply in the
case of an abrupt loss of any significant supplier during the three month
period leading up to the Christmas season; the dependence on key personnel
who have been hired or retained since bankruptcy; the changes in regulatory
requirements which are applicable to the Company's business; management
decisions to pursue new product lines which may involve additional costs; and
the risk factors listed from time to time in the Company's Securities and
Exchange commission reports, including but not limited to, its Annual Report
on Form 10-K for the year ended July 31, 1998.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of October 31,
1998 has not materially changed since July 31, 1998. The market risk profile
on July 31, 1998 is disclosed in the Company's Annual Report on Form 10-K for
the year ended July 31, 1998.
19
<PAGE>
PART II. - OTHER INFORMATION:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On November 13, 1998, the Annual Meeting of Stockholders of the Company was
held at the Boca Raton Conference Center - Boca Raton, Florida. There were
36,692,293 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 32,299,892 236,318
Glen Adams 32,306,223 229,987
Peter P. Copses 32,307,152 229,058
A. David Brown 32,302,112 234,098
Andrea Jung 32,300,947 235,263
Richard C. Marcus 32,305,223 230,987
Charles H. Pistor, Jr. 32,301,112 235,098
Andrew H. Tisch 32,301,123 235,087
</TABLE>
(c) The approval of the Zale Corporation Executive Bonus Plan was ratified with
31,934,862 votes for, 568,774 votes against, and 32,574 abstentions.
(d) The appointment of Arthur Andersen LLP as Independent Public Accountants
for the fiscal year ending July 31, 1999 was ratified with 32,498,369 votes
for, 20,164 votes against and 17,677 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Part I Exhibits-
27 -Financial data schedule.
Part II Exhibits-
*10.1 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Robert J. DiNicola. (1)
*10.2 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Beryl B. Raff. (1)
*10.3 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Alan P. Shor. (1)
*10.4 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Mary L. Forte. (1)
*10.5 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Sue E. Gove. (1)
- --------------
(1) Filed herewith.
* Management Contracts and Compensatory Plans.
(b) Form 8-K
99 Press Release issued by the Company on September 1, 1998.
20
<PAGE>
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 4, 1998 /s/ MARK R. LENZ
---------------------------------------
Mark R. Lenz
Senior Vice-President, Controller
(principal accounting officer of the
registrant)
21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number
- --------------
<S> <C>
10.1 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Robert J. DiNicola.
10.2 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Beryl B. Raff.
10.3 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Alan P. Shor.
10.4 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Mary L. Forte.
10.5 -Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Sue E. Gove.
27 -Financial data schedule.
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of October 8, 1998, is by and between Zale
Corporation, a Delaware corporation ("Company"), and Robert J. DiNicola
("Executive").
WHEREAS, Executive and Company entered into that certain Employment
Agreement dated August 1, 1997 which sets forth the terms and conditions for
Executive's continued employment with the Company (the "Agreement"); and
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company to amend certain provisions of the
Agreement in order to retain and motivate Executive; and
WHEREAS, Executive and Company now desire to amend such provisions of
the Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"5. CERTAIN TERMINATION BENEFITS. Notwithstanding anything else
contained herein to the contrary, in the event (i) the Company elects not to
renew the term of this Agreement pursuant to Section 3 hereof, (ii) the
Company terminates this Agreement pursuant to Section 4(c), or (iii)
Executive terminates this Agreement pursuant to Section 4(d), then Executive
shall be entitled to the following benefits:
(a) SEVERANCE. The Company shall continue to pay (in accordance with
its normal payroll procedures) the Base Salary to Executive (or Executive's
estate if Executive dies) for a sixty (60) month period (the "Severance
Period") after the effective date of such expiration or termination.
(b) BENEFITS. During the first twelve (12) months of the Severance
Period, the Executive shall continue to receive all fringe benefits
provided under Sections 2(b) through 2(i) hereof.
(c) OFFSET. The payments which would have been due and payable in
accordance with Section 5(a) hereof shall be reduced by an amount equal to
any amounts that Executive receives in connection with any other employment
during the Severance Period.
<PAGE>
Any fringe benefits received by Executive in connection with any other
employment that are reasonably comparable, but not necessarily as
beneficial, to Executive as the fringe benefits then being provided by
the Company pursuant to Section 5(b) hereof, shall be deemed to be the
equivalent of, and shall terminate the Company's responsibility to
continue providing the fringe benefits then being provided by the Company
pursuant to Section 5(b) hereof. The Company acknowledges that, if
Executive's employment with the Company is terminated, Executive shall
have no duty to mitigate damages.
(d) GENERAL RELEASE. Acceptance by Executive of any amounts pursuant
to this Section 5 shall constitute a full and complete release by Executive
of any and all claims Executive may have against the Company, its officers,
directors and affiliates, including, but not limited to, claims he might
have relating to Executive's cessation of employment with the Company;
provided, however, that there may properly be excluded from the scope of
such general release the following:
(i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by
him during the course of his employment;
(ii) claims that may be made by the Executive for payment of
Base Salary, fringe benefits or stock options properly due to him; or
(iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of
Incorporation or Bylaws, respecting third party claims asserted or
third party litigation pending or threatened against the Executive.
A condition to Executive's receipt of any amounts pursuant to this
Section 5 shall be Executive's execution and delivery of a general release as
described above. In exchange for such release, the Company shall, if
Executive's employment is terminated without Cause, provide a release to
Executive, but only with respect to claims against Executive which are
actually known to the Company as of the time of such termination."
2. Notwithstanding anything to the contrary in Section 6(c) of the
Agreement, Executive and the Company hereby agree that in the event of a
Change of Control (as defined in the Agreement) prior to January 1, 2000, for
purposes of Section 6 of the Agreement, the term "Good Reason" shall be
deemed to also include termination by Executive for any reason or for no
reason, and any termination by Executive of his employment shall constitute
termination for "Good Reason". If no Change of Control occurs prior to
January 1, 2000, from and after that date, the term "Good Reason" shall have
the meaning set forth in the Agreement without regard to this Amendment.
3. Executive and the Company further agree that all other terms and
provisions of the Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date first above written.
By: /s/ Robert J. DiNicola
-----------------------------------
Robert J. DiNicola
ZALE CORPORATION
By: /s/ Alan P. Shor
-----------------------------------
Alan P. Shor
Its: Executive Vice-President and Chief
Logistics Officer
Compensation Committee of the Zale
Corporation Board of Directors
By: /s/ Richard C. Marcus
-----------------------------------
Richard C. Marcus
Its: Chairman
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of October 8, 1998, is by and between Zale
Corporation, a Delaware corporation ("Company"), and Beryl B. Raff
("Executive").
WHEREAS, Executive and Company entered into that certain Employment
Agreement dated August 1, 1998 which sets forth the terms and conditions for
Executive's continued employment with the Company (the "Agreement"); and
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company to amend certain provisions of the
Agreement in order to retain and motivate Executive; and
WHEREAS, Executive and Company now desire to amend such provisions of
the Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"5. CERTAIN TERMINATION BENEFITS. Notwithstanding anything else
contained herein to the contrary, in the event (i) the Company elects not to
renew the term of this Agreement pursuant to Section 3 hereof, (ii) the
Company terminates this Agreement pursuant to Section 4(c), or (iii)
Executive terminates this Agreement pursuant to Section 4(d), then Executive
shall be entitled to the following benefits:
(a) SEVERANCE. The Company shall continue to pay (in accordance with
its normal payroll procedures) the Base Salary to Executive (or Executive's
estate if Executive dies) for a thirty-six (36) month period (the
"Severance Period") after the effective date of such expiration or
termination.
(b) BENEFITS. During the first twelve (12) months of the Severance
Period, the Executive shall continue to receive all fringe benefits
provided under Sections 2(b), 2(c) and 2(d) hereof.
(c) OFFSET. The payments which would have been due and payable in
accordance with Section 5(a) hereof shall be reduced by an amount equal to
any amounts that Executive receives in connection with any other employment
during the Severance Period. Any fringe benefits received by Executive in
connection with any other employment that
<PAGE>
are reasonably comparable, but not necessarily as beneficial, to Executive
as the fringe benefits then being provided by the Company pursuant to
Section 5(b) hereof, shall be deemed to be the equivalent of, and shall
terminate the Company's responsibility to continue providing the fringe
benefits then being provided by the Company pursuant to Section 5(b)
hereof. The Company acknowledges that, if Executive's employment with the
Company is terminated, Executive shall have no duty to mitigate damages.
(d) GENERAL RELEASE. Acceptance by Executive of any amounts pursuant
to this Section 5 shall constitute a full and complete release by Executive
of any and all claims Executive may have against the Company, its officers,
directors and affiliates, including, but not limited to, claims she might
have relating to Executive's cessation of employment with the Company;
provided, however, that there may properly be excluded from the scope of
such general release the following:
(i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by
her during the course of her employment;
(ii) claims that may be made by the Executive for payment of
Base Salary, fringe benefits or stock options properly due to her; or
(iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of
Incorporation or Bylaws, respecting third party claims asserted or
third party litigation pending or threatened against the Executive.
A condition to Executive's receipt of any amounts pursuant to this
Section 5 shall be Executive's execution and delivery of a general release as
described above. In exchange for such release, the Company shall, if
Executive's employment is terminated without Cause, provide a release to
Executive, but only with respect to claims against Executive which are
actually known to the Company as of the time of such termination."
2. Notwithstanding anything to the contrary in Section 6(c) of the
Agreement, Executive and the Company hereby agree that in the event of a
Change of Control (as defined in the Agreement) prior to January 1, 2000, for
purposes of Section 6 of the Agreement, the term "Good Reason" shall be
deemed to also include termination by Executive for any reason or for no
reason, and any termination by Executive of his employment shall constitute
termination for "Good Reason". If no Change of Control occurs prior to
January 1, 2000, from and after that date, the term "Good Reason" shall have
the meaning set forth in the Agreement without regard to this Amendment.
3. Executive and the Company further agree that all other terms and
provisions of the Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date first above written.
By: /s/ Beryl B. Raff
-----------------------------------
Beryl B. Raff
ZALE CORPORATION
By: /s/ Robert J. DiNicola
-----------------------------------
Robert J. DiNicola
Its: Chairman & CEO
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of October 8, 1998, is by and between Zale
Corporation, a Delaware corporation ("Company"), and Alan P. Shor
("Executive").
WHEREAS, Executive and Company entered into that certain Employment
Agreement dated August 1, 1998 which sets forth the terms and conditions for
Executive's continued employment with the Company (the "Agreement"); and
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company to amend certain provisions of the
Agreement in order to retain and motivate Executive; and
WHEREAS, Executive and Company now desire to amend such provisions of
the Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"5. CERTAIN TERMINATION BENEFITS. Notwithstanding anything else
contained herein to the contrary, in the event (i) the Company elects not to
renew the term of this Agreement pursuant to Section 3 hereof, (ii) the
Company terminates this Agreement pursuant to Section 4(c), or (iii)
Executive terminates this Agreement pursuant to Section 4(d), then Executive
shall be entitled to the following benefits:
(a) SEVERANCE. The Company shall continue to pay (in accordance with
its normal payroll procedures) the Base Salary to Executive (or Executive's
estate if Executive dies) for a thirty-six (36) month period (the
"Severance Period") after the effective date of such expiration or
termination.
(b) BENEFITS. During the first twelve (12) months of the Severance
Period, the Executive shall continue to receive all fringe benefits
provided under Sections 2(b), 2(c) and 2(d) hereof.
(c) OFFSET. The payments which would have been due and payable in
accordance with Section 5(a) hereof shall be reduced by an amount equal to
any amounts that Executive receives in connection with any other employment
during the Severance Period. Any fringe benefits received by Executive in
connection with any other employment that are reasonably comparable, but
not necessarily as beneficial, to Executive as the fringe
<PAGE>
benefits then being provided by the Company pursuant to Section 5(b)
hereof, shall be deemed to be the equivalent of, and shall terminate the
Company's responsibility to continue providing the fringe benefits then
being provided by the Company pursuant to Section 5(b) hereof. The Company
acknowledges that, if Executive's employment with the Company is
terminated, Executive shall have no duty to mitigate damages.
(d) GENERAL RELEASE. Acceptance by Executive of any amounts pursuant
to this Section 5 shall constitute a full and complete release by Executive
of any and all claims Executive may have against the Company, its officers,
directors and affiliates, including, but not limited to, claims he might
have relating to Executive's cessation of employment with the Company;
provided, however, that there may properly be excluded from the scope of
such general release the following:
(i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by
him during the course of him employment;
(ii) claims that may be made by the Executive for payment of
Base Salary, fringe benefits or stock options properly due to him; or
(iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of
Incorporation or Bylaws, respecting third party claims asserted or
third party litigation pending or threatened against the Executive.
A condition to Executive's receipt of any amounts pursuant to this
Section 5 shall be Executive's execution and delivery of a general release as
described above. In exchange for such release, the Company shall, if
Executive's employment is terminated without Cause, provide a release to
Executive, but only with respect to claims against Executive which are
actually known to the Company as of the time of such termination."
2. Notwithstanding anything to the contrary in Section 6(c) of the
Agreement, Executive and the Company hereby agree that in the event of a
Change of Control (as defined in the Agreement) prior to January 1, 2000, for
purposes of Section 6 of the Agreement, the term "Good Reason" shall be
deemed to also include termination by Executive for any reason or for no
reason, and any termination by Executive of his employment shall constitute
termination for "Good Reason". If no Change of Control occurs prior to
January 1, 2000, from and after that date, the term "Good Reason" shall have
the meaning set forth in the Agreement without regard to this Amendment.
3. Executive and the Company further agree that all other terms and
provisions of the Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date first above written.
By: /s/ Alan P. Shor
-----------------------------------
Alan P. Shor
ZALE CORPORATION
By: /s/ Robert J. DiNicola
-----------------------------------
Robert J. DiNicola
Its: Chairman & CEO
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of October 8, 1998, is by and between Zale
Corporation, a Delaware corporation ("Company"), and Mary Forte'
("Executive").
WHEREAS, Executive and Company entered into that certain Employment
Agreement dated January 15, 1998 which sets forth the terms and conditions
for Executive's continued employment with the Company (the "Agreement"); and
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company to amend certain provisions of the
Agreement in order to retain and motivate Executive; and
WHEREAS, Executive and Company now desire to amend such provisions of
the Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"5. CERTAIN TERMINATION BENEFITS. Notwithstanding anything else
contained herein to the contrary, in the event (i) the Company elects not to
renew the term of this Agreement pursuant to Section 3 hereof, (ii) the
Company terminates this Agreement pursuant to Section 4(c), or (iii)
Executive terminates this Agreement pursuant to Section 4(d), then Executive
shall be entitled to the following benefits:
(a) SEVERANCE. The Company shall continue to pay (in accordance with
its normal payroll procedures) the Base Salary to Executive (or Executive's
estate if Executive dies) for the remainder of the Term of this Agreement
(the "Severance Period").
(b) BENEFITS. During the first twelve (12) months of the Severance
Period, the Executive shall continue to receive all fringe benefits
provided under Sections 2(b), 2(c) and 2(d) hereof.
(c) OFFSET. The payments which would have been due and payable in
accordance with Section 5(a) hereof shall be reduced by an amount equal to
any amounts that Executive receives in connection with any other employment
during the Severance Period. Any fringe benefits received by Executive in
connection with any other employment that are reasonably comparable, but
not necessarily as beneficial, to Executive as the fringe
<PAGE>
benefits then being provided by the Company pursuant to Section 5(b)
hereof, shall be deemed to be the equivalent of, and shall terminate the
Company's responsibility to continue providing the fringe benefits then
being provided by the Company pursuant to Section 5(b) hereof. The Company
acknowledges that, if Executive's employment with the Company is
terminated, Executive shall have no duty to mitigate damages.
(d) GENERAL RELEASE. Acceptance by Executive of any amounts pursuant
to this Section 5 shall constitute a full and complete release by Executive
of any and all claims Executive may have against the Company, its officers,
directors and affiliates, including, but not limited to, claims she might
have relating to Executive's cessation of employment with the Company;
provided, however, that there may properly be excluded from the scope of
such general release the following:
(i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by
her during the course of her employment;
(ii) claims that may be made by the Executive for payment of
Base Salary, fringe benefits or stock options properly due to her; or
(iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of
Incorporation or Bylaws, respecting third party claims asserted or
third party litigation pending or threatened against the Executive.
A condition to Executive's receipt of any amounts pursuant to this
Section 5 shall be Executive's execution and delivery of a general release as
described above. In exchange for such release, the Company shall, if
Executive's employment is terminated without Cause, provide a release to
Executive, but only with respect to claims against Executive which are
actually known to the Company as of the time of such termination."
2. Notwithstanding anything to the contrary in Section 6(c) of the
Agreement, Executive and the Company hereby agree that in the event of a
Change of Control (as defined in the Agreement) prior to January 1, 2000, for
purposes of Section 6 of the Agreement, the term "Good Reason" shall be
deemed to also include termination by Executive for any reason or for no
reason, and any termination by Executive of his employment shall constitute
termination for "Good Reason". If no Change of Control occurs prior to
January 1, 2000, from and after that date, the term "Good Reason" shall have
the meaning set forth in the Agreement without regard to this Amendment.
3. Executive and the Company further agree that all other terms and
provisions of the Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date first above written.
By: /s/ Mary Forte'
-----------------------------------
Mary Forte'
ZALE CORPORATION
By: /s/ Robert J. DiNicola
-----------------------------------
Robert J. DiNicola
Its: Chairman & CEO
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of October 8, 1998, is by and between Zale
Corporation, a Delaware corporation ("Company"), and Sue E. Gove
("Executive").
WHEREAS, Executive and Company entered into that certain Employment
Agreement dated August 1, 1998 which sets forth the terms and conditions for
Executive's continued employment with the Company (the "Agreement"); and
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company to amend certain provisions of the
Agreement in order to retain and motivate Executive; and
WHEREAS, Executive and Company now desire to amend such provisions of
the Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"5. CERTAIN TERMINATION BENEFITS. Notwithstanding anything else
contained herein to the contrary, in the event (i) the Company elects not to
renew the term of this Agreement pursuant to Section 3 hereof, (ii) the
Company terminates this Agreement pursuant to Section 4(c), or (iii)
Executive terminates this Agreement pursuant to Section 4(d), then Executive
shall be entitled to the following benefits:
(a) SEVERANCE. The Company shall continue to pay (in accordance with
its normal payroll procedures) the Base Salary to Executive (or Executive's
estate if Executive dies) for the remainder of the Term of this Agreement
(the "Severance Period").
(b) BENEFITS. During the first twelve (12) months of the Severance
Period, the Executive shall continue to receive all fringe benefits
provided under Sections 2(b), 2(c) and 2(d) hereof.
(c) OFFSET. The payments which would have been due and payable in
accordance with Section 5(a) hereof shall be reduced by an amount equal to
any amounts that Executive receives in connection with any other employment
during the Severance Period. Any fringe benefits received by Executive in
connection with any other employment that are reasonably comparable, but
not necessarily as beneficial, to Executive as the fringe benefits then
being provided by the Company pursuant to Section 5(b) hereof, shall be
<PAGE>
deemed to be the equivalent of, and shall terminate the Company's
responsibility to continue providing the fringe benefits then being
provided by the Company pursuant to Section 5(b) hereof. The Company
acknowledges that, if Executive's employment with the Company is
terminated, Executive shall have no duty to mitigate damages.
(d) GENERAL RELEASE. Acceptance by Executive of any amounts pursuant
to this Section 5 shall constitute a full and complete release by Executive
of any and all claims Executive may have against the Company, its officers,
directors and affiliates, including, but not limited to, claims she might
have relating to Executive's cessation of employment with the Company;
provided, however, that there may properly be excluded from the scope of
such general release the following:
(i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by
her during the course of her employment;
(ii) claims that may be made by the Executive for payment of
Base Salary, fringe benefits or stock options properly due to her; or
(iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of
Incorporation or Bylaws, respecting third party claims asserted or
third party litigation pending or threatened against the Executive.
A condition to Executive's receipt of any amounts pursuant to this
Section 5 shall be Executive's execution and delivery of a general release as
described above. In exchange for such release, the Company shall, if
Executive's employment is terminated without Cause, provide a release to
Executive, but only with respect to claims against Executive which are
actually known to the Company as of the time of such termination."
2. Notwithstanding anything to the contrary in Section 6(c) of the
Agreement, Executive and the Company hereby agree that in the event of a
Change of Control (as defined in the Agreement) prior to January 1, 2000, for
purposes of Section 6 of the Agreement, the term "Good Reason" shall be
deemed to also include termination by Executive for any reason or for no
reason, and any termination by Executive of his employment shall constitute
termination for "Good Reason". If no Change of Control occurs prior to
January 1, 2000, from and after that date, the term "Good Reason" shall have
the meaning set forth in the Agreement without regard to this Amendment.
3. Executive and the Company further agree that all other terms and
provisions of the Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date first above written.
By: /s/ Sue E. Gove
-----------------------------------
Sue E. Gove
ZALE CORPORATION
By: /s/ Robert J. DiNicola
-----------------------------------
Robert J. DiNicola
Its: Chairman & CEO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE OCTOBER
31, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 150,919<F2>
<SECURITIES> 0
<RECEIVABLES> 488,199<F1>
<ALLOWANCES> 0
<INVENTORY> 585,640
<CURRENT-ASSETS> 1,255,866
<PP&E> 172,628<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,533,484
<CURRENT-LIABILITIES> 315,060
<BONDS> 480,294
0
0
<COMMON> 384
<OTHER-SE> 629,928
<TOTAL-LIABILITY-AND-EQUITY> 1,533,484
<SALES> 254,186
<TOTAL-REVENUES> 254,186
<CGS> 132,097
<TOTAL-COSTS> 132,097
<OTHER-EXPENSES> 6,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,876
<INCOME-PRETAX> 3,455
<INCOME-TAX> 1,292
<INCOME-CONTINUING> 2,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,163
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<FN>
<F1>THIS ASSET VALUE REPRESENTS A NET AMOUNT.
<F2>AMOUNT INCLUDES CASH AND CASH EQUIVALENTS AND RESTRICTED CASH.
</FN>
</TABLE>
