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EXHIBIT 99.3
Conference Call Script:
Bob DiNicola,
Introduce Sue to review safe harbor language.
Focus on the attractiveness of the business model as related to our long term
strategy and the global nature of our continual efforts to divest underproducing
assets and reinvest in more strategic higher return activities.
Beryl Raff, President and CEO
Focus:
Focus on the merchandising and operations, the synergies and opportunities with
our current structure.
I am very pleased to start off our fiscal 2001 year with a new opportunity to
apply the successful retailing strategies we have executed over the past six
years to another retailing concept.
Piercing Pagoda is a natural addition to our GOOD, BETTER, BEST strategy. The
focus is an entry-level price point primarily in gold jewelry (10 and 14 ct.).
Accordingly, catering to this customer in the context of a Zales store is not
appropriate for our stated goals of increasing productivity. However, this price
point is clearly productive in a kiosk format.
(As Bob discussed) the kiosk format is one we have been studying and has had
significant appeal to us for several years. With our foundation and brands
strongly entrenched, the timing is now right to extend our strategy to the
opening price point consumer.
We tested our organizations' ability to handle an acquisition of size with the
announcement of our Peoples transaction last year and to date have met that
challenge successfully. Our organization is mature and has the skill sets in
place to take advantage of this latest opportunity.
As we look specifically to the task at hand, there are clearly transition issues
that are a part of any acquisition and we will move carefully and cautiously to
minimize disruption to our core business and the Pagoda operations. However, we
do see tremendous opportunity to apply the retail disciplines that have been
successful at our existing brands to Piercing Pagoda.
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First and foremost, we believe our merchandising skills and processes are
adaptable. The key item focus: identifying the most popular styles, owning them
in depth and promoting them is a significant opportunity. In addition, our
inventory management and review processes, which are critical to understanding
which items are the best sellers, testing items, projecting rates of sale and
finally identifying stale inventory in order to replace it with more productive
items, will be leveraged to Pagoda.
We have shown in our existing brands an ability to create demand and capitalize
on mall traffic as well as gift-giving events - through our item intensification
and focused marketing. Pagoda is currently dependent on mall traffic and we
believe there is untapped opportunity to create demand and excitement at the
entry level price point as we have with our $99 programs, signature items and
focused advertising campaigns.
From an operational standpoint, there is a solid management team and store
structure in place which we feel will aide in the transition.
This acquisition provides tremendous opportunities for future growth to both our
existing personnel as well as the new members of the Zale family from Pagoda. We
are excited and energized at the opportunity to further position Zale
Corporation as a premier specialty retailer.
Sue Gove, Chief Financial Officer
I would first like to echo my excitement at the long term opportunity that this
acquisition presents to us. Not only is it a great opportunity to extend our
Brands, we also believe this is an ideal use of our cash nd resources to enhance
shareholder value.
A few notes on the financial structure.
As noted the acquisition price is $21.50 per share. After giving effect to
shares outstanding and stock options, that equates to approximately $201
million. In addition, we will be assuming debt of approximately $55-60 million
comprised of working capital and an off balance sheet gold lease.
It is our intent to retire the existing debt upon completion of the transaction.
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The transaction will result in approximately $180 million in goodwill to be
amortized over 20 years. Goodwill is comprised of the purchase price over book
value, existing goodwill on Pagoda's books and purchase accounting reserves to
address slow moving inventory, transition costs and other reserves.
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Purchase price $200,800 (212,100, net of option $)
Book Value $ (85,300)
Net $ 115,500
Transition costs &
Reserve establishment $ 45,600
Existing Goodwill $ 18,800
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$ 180,000
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For Pagoda's fiscal year ending March 31, 2000, they reported:
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Revenues: $ 281 million
Net Income: $ 13 million
EPS: $ 1.41
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The revenues represent 13.5% of the combined Company's total revenues for fiscal
2000. From an EPS standpoint we are projecting the impact to be neutral (or
breakeven) to earning for fiscal 2001. Our guidance for a neutral impact is
based on the following:
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Pagoda net income
last reported: $ 13.0 million
Zale int. Income: $(10.0) million (pre-tax $18 million on $212 + $60 debt)
Goodwill $( 8.0) million (9 million less $1 million tax deductible)
Operating effeciencies $ 5.0 million
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Net $13.0 million
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Please note that Cindy Gordon and I will be available to address model related
issues subsequent to the completion of this call. We are not prepared to provide
revised quarterly guidance at this time. We will plan to do that on August 30 at
which time we will be announcing our year end earnings.
I will now turn this conference call back to our Chairman, Bob DiNicola.
