Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Oct. 31, 2013 | Dec. 02, 2013 | |
Document and Entity Information | ' | ' |
Entity Registrant Name | 'ZALE CORP | ' |
Entity Central Index Key | '0000109156 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 31-Oct-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--07-31 | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Filer Category | 'Accelerated Filer | ' |
Entity Common Stock, Shares Outstanding | ' | 32,848,772 |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q1 | ' |
CONSOLIDATED_STATEMENTS_OF_OPE
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 3 Months Ended | |
In Thousands, except Per Share data, unless otherwise specified | Oct. 31, 2013 | Oct. 31, 2012 |
CONSOLIDATED STATEMENTS OF OPERATIONS | ' | ' |
Revenues | $362,615 | $357,468 |
Cost of sales | 168,827 | 167,133 |
Gross margin | 193,788 | 190,335 |
Selling, general and administrative | 208,159 | 206,465 |
Depreciation and amortization | 7,661 | 8,646 |
Other gains | ' | -1,773 |
Operating loss | -22,032 | -23,003 |
Interest expense | 5,609 | 5,842 |
Loss before income taxes | -27,641 | -28,845 |
Income tax benefit | -335 | -580 |
Net loss | ($27,306) | ($28,265) |
Basic and diluted net loss per common share (in dollars per share) | ($0.83) | ($0.88) |
Basic and diluted weighted average number of common shares outstanding (in shares) | 32,736 | 32,298 |
CONSOLIDATED_STATEMENTS_OF_COM
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Oct. 31, 2013 | Oct. 31, 2012 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS | ' | ' |
Net loss | ($27,306) | ($28,265) |
Foreign currency translation adjustment | -3,233 | 514 |
Unrealized loss on interest rate swaps | -2,516 | ' |
Unrealized gain (loss) on securities, net | 74 | -55 |
Comprehensive loss | ($32,981) | ($27,806) |
CONSOLIDATED_BALANCE_SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | Oct. 31, 2013 | Jul. 31, 2013 | Oct. 31, 2012 |
In Thousands, unless otherwise specified | |||
Current assets: | ' | ' | ' |
Cash and cash equivalents | $13,945 | $17,060 | $14,572 |
Merchandise inventories | 903,282 | 767,540 | 908,415 |
Other current assets | 52,163 | 53,335 | 55,057 |
Total current assets | 969,390 | 837,935 | 978,044 |
Property and equipment | 677,338 | 675,705 | 692,100 |
Less accumulated depreciation and amortization | -572,249 | -570,427 | -575,014 |
Net property and equipment | 105,089 | 105,278 | 117,086 |
Goodwill | 97,135 | 98,372 | 100,731 |
Other assets | 41,100 | 38,560 | 50,767 |
Deferred tax asset | 107,110 | 107,110 | 96,929 |
Total assets | 1,319,824 | 1,187,255 | 1,343,557 |
Current liabilities: | ' | ' | ' |
Accounts payable and accrued liabilities | 297,104 | 220,558 | 334,292 |
Deferred revenue | 79,205 | 82,110 | 83,339 |
Deferred tax liability | 107,344 | 107,016 | 96,687 |
Total current liabilities | 483,653 | 409,684 | 514,318 |
Long-term debt | 505,575 | 410,050 | 524,167 |
Deferred revenue - long-term | 104,019 | 109,135 | 115,900 |
Other liabilities | 73,622 | 73,057 | 37,208 |
Commitments and contingencies | ' | ' | ' |
Stockholders' investment: | ' | ' | ' |
Common stock | 488 | 488 | 488 |
Additional paid-in capital | 151,563 | 155,625 | 160,012 |
Accumulated other comprehensive income | 41,340 | 47,015 | 53,828 |
Accumulated earnings | 407,834 | 435,140 | 396,863 |
Total stockholders' investment before treasury stock | 601,225 | 638,268 | 611,191 |
Treasury stock | -448,270 | -452,939 | -459,227 |
Total stockholders' investment | 152,955 | 185,329 | 151,964 |
Total liabilities and stockholders' investment | $1,319,824 | $1,187,255 | $1,343,557 |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Oct. 31, 2013 | Oct. 31, 2012 |
Cash Flows From Operating Activities: | ' | ' |
Net loss | ($27,306) | ($28,265) |
Adjustments to reconcile net loss to net cash used in operating activities: | ' | ' |
Non-cash interest | 727 | 726 |
Depreciation and amortization | 7,661 | 8,646 |
Deferred taxes | 328 | 25 |
Loss on disposition of property and equipment | 215 | 277 |
Stock-based compensation | 990 | 1,060 |
Changes in operating assets and liabilities: | ' | ' |
Merchandise inventories | -138,100 | -166,704 |
Other current assets | 379 | -8,668 |
Other assets | 503 | 1,498 |
Accounts payable and accrued liabilities | 76,521 | 128,331 |
Deferred revenue | -7,553 | -9,375 |
Other liabilities | -1,310 | 49 |
Net cash used in operating activities | -86,945 | -72,400 |
Cash Flows From Investing Activities: | ' | ' |
Payments for property and equipment | -9,286 | -7,102 |
Purchase of available-for-sale investments | -3,532 | -1,674 |
Proceeds from sales of available-for-sale investments | 955 | 311 |
Net cash used in investing activities | -11,863 | -8,465 |
Cash Flows From Financing Activities: | ' | ' |
Borrowings under revolving credit agreement | 1,355,900 | 1,437,700 |
Payments on revolving credit agreement | -1,260,100 | -1,366,800 |
Proceeds from exercise of stock options | 261 | 35 |
Payments on capital lease obligations | -269 | -237 |
Net cash provided by financing activities | 95,792 | 70,698 |
Effect of exchange rate changes on cash | -99 | 136 |
Net change in cash and cash equivalents | -3,115 | -10,031 |
Cash and cash equivalents at beginning of period | 17,060 | 24,603 |
Cash and cash equivalents at end of period | $13,945 | $14,572 |
BASIS_OF_PRESENTATION
BASIS OF PRESENTATION | 3 Months Ended |
Oct. 31, 2013 | |
BASIS OF PRESENTATION | ' |
BASIS OF PRESENTATION | ' |
1. BASIS OF PRESENTATION | |
References to the "Company," "we," "us," and "our" in this Form 10-Q are references to Zale Corporation and its subsidiaries. We are, through our wholly owned subsidiaries, a leading specialty retailer of fine jewelry in North America. At October 31, 2013, we operated 1,057 specialty retail jewelry stores and 625 kiosks located primarily in shopping malls throughout the United States, Canada and Puerto Rico. | |
We report our operations under three segments: Fine Jewelry, Kiosk Jewelry and All Other. Fine Jewelry is comprised of our three core national brands, Zales Jewelers®, Zales Outlet® and Peoples Jewellers® and our two regional brands, Gordon's Jewelers® and Mappins Jewellers®. Each brand specializes in fine jewelry and watches, with merchandise and marketing emphasis focused on diamond products. Zales Jewelers® is our national brand in the U.S. providing moderately priced jewelry to a broad range of guests. Zales Outlet® operates in outlet malls and neighborhood power centers and capitalizes on Zale Jewelers'® national marketing and brand recognition. Gordon's Jewelers® is a value-oriented regional jeweler. Peoples Jewellers®, Canada's largest fine jewelry retailer, provides guests with an affordable assortment and an accessible shopping experience. Mappins Jewellers® offers Canadian guests a broad selection of merchandise from engagement rings to fashionable and contemporary fine jewelry. | |
Kiosk Jewelry operates under the brand names Piercing Pagoda®, Plumb Gold™, and Silver and Gold Connection® through mall-based kiosks and is focused on the opening price point guest. Kiosk Jewelry specializes in gold, silver and non-precious metal products that capitalize on the latest fashion trends. | |
All Other includes our insurance and reinsurance operations, which offer insurance coverage primarily to our private label credit card guests. | |
We also maintain a presence in the retail market through our ecommerce sites www.zales.com, www.zalesoutlet.com, www.gordonsjewelers.com, www.peoplesjewellers.com and www.pagoda.com. | |
We consolidate all of our U.S. 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 our credit customers. We consolidate our Canadian retail operations into Zale Canada Holding, L.P., which is a wholly owned subsidiary of Zale Corporation. All significant intercompany transactions have been eliminated. The consolidated financial statements are unaudited and have been prepared by the Company in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management's opinion, all material adjustments (consisting of normal recurring accruals and adjustments) and disclosures necessary for a fair presentation have been made. Because of the seasonal nature of the retail business, operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. 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 Annual Report on Form 10-K for the fiscal year ended July 31, 2013 filed with the Securities and Exchange Commission ("SEC") on September 27, 2013. | |
Reclassification. Certain prior year amounts have been reclassified in the accompanying consolidated financial statements to conform to our fiscal year 2014 presentation. | |
FAIR_VALUE_MEASUREMENTS
FAIR VALUE MEASUREMENTS | 3 Months Ended | ||||||||||
Oct. 31, 2013 | |||||||||||
FAIR VALUE MEASUREMENTS | ' | ||||||||||
FAIR VALUE MEASUREMENTS | ' | ||||||||||
2. FAIR VALUE MEASUREMENTS | |||||||||||
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, Accounting Standards Codification ("ASC") 820, Fair Value Measurement, establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair values. These tiers include: | |||||||||||
Level 1 | — | Quoted prices for identical instruments in active markets; | |||||||||
Level 2 | — | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; and | |||||||||
Level 3 | — | Instruments whose significant inputs are unobservable. | |||||||||
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis | |||||||||||
The following tables include our assets and liabilities that are measured at fair value on a recurring basis (in thousands): | |||||||||||
Fair Value as of October 31, | |||||||||||
2013 | |||||||||||
Level 1 | Level 2 | Level 3 | |||||||||
Assets | |||||||||||
U.S. Treasury securities | $ | 14,430 | $ | — | $ | — | |||||
U.S. government agency securities | — | 2,102 | — | ||||||||
Corporate bonds and notes | — | 4,189 | — | ||||||||
Corporate equity securities | 2,601 | — | — | ||||||||
$ | 17,031 | $ | 6,291 | $ | — | ||||||
Liabilities | |||||||||||
Interest rate swaps | $ | — | $ | 2,516 | $ | — | |||||
Fair Value as of October 31, | |||||||||||
2012 | |||||||||||
Level 1 | Level 2 | Level 3 | |||||||||
Assets | |||||||||||
U.S. Treasury securities | $ | 22,623 | $ | — | $ | — | |||||
U.S. government agency securities | — | 2,875 | — | ||||||||
Corporate bonds and notes | — | 1,018 | — | ||||||||
Corporate equity securities | 4,133 | — | — | ||||||||
$ | 26,756 | $ | 3,893 | $ | — | ||||||
Investments in U.S. Treasury securities and corporate equity securities are based on quoted market prices for identical instruments in active markets, and therefore were classified as a Level 1 measurement in the fair value hierarchy. Investments in U.S. government agency securities and corporate bonds and notes are based on quoted prices for similar instruments in active markets, and therefore were classified as a Level 2 measurement in the fair value hierarchy (see Note 3 for additional information related to our investments). | |||||||||||
The fair value of our interest rate swaps are calculated using significant observable inputs including the present value of estimated future cash flows using interest rate curves, and therefore were classified as a Level 2 measurement in the fair value hierarchy (see Note 4 for additional information related to our interest rate swaps). | |||||||||||
Assets that are Measured at Fair Value on a Nonrecurring Basis | |||||||||||
Assets that are measured at fair value on a nonrecurring basis primarily relate to our goodwill and store-level property and equipment. Potential impairment losses related to these assets are calculated using significant unobservable inputs including the present value of future cash flows expected to be generated using a risk-adjusted weighted-average cost of capital and positive comparable store sales growth assumptions, and therefore are classified as a Level 3 measurement in the fair value hierarchy. There were no impairments related to our goodwill and property and equipment for the three months ended October 31, 2013 and 2012. | |||||||||||
Other Financial Instruments | |||||||||||
As cash and short-term cash investments, trade payables and certain other short-term financial instruments are all short-term in nature, their carrying amount approximates fair value. The outstanding principal of our revolving credit agreement and senior secured term loan approximates fair value as of October 31, 2013. The fair value of the revolving credit agreement and the senior secured term loan were based on estimates of current interest rates for similar debt, a Level 3 input. | |||||||||||
INVESTMENTS
INVESTMENTS | 3 Months Ended | |||||||||||||
Oct. 31, 2013 | ||||||||||||||
INVESTMENTS | ' | |||||||||||||
INVESTMENTS | ' | |||||||||||||
3. INVESTMENTS | ||||||||||||||
Investments in debt and equity securities held by our insurance subsidiaries are reported as other assets in the accompanying consolidated balance sheets. Investments are recorded at fair value based on quoted market prices for identical or similar securities. All investments are classified as available-for-sale. | ||||||||||||||
Our investments consist of the following (in thousands): | ||||||||||||||
October 31, 2013 | October 31, 2012 | |||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||
U.S. Treasury securities | $ | 13,497 | $ | 14,430 | $ | 21,092 | $ | 22,623 | ||||||
U.S. government agency securities | 1,989 | 2,102 | 2,657 | 2,875 | ||||||||||
Corporate bonds and notes | 4,099 | 4,189 | 906 | 1,018 | ||||||||||
Corporate equity securities | 1,784 | 2,601 | 3,501 | 4,133 | ||||||||||
$ | 21,369 | $ | 23,322 | $ | 28,156 | $ | 30,649 | |||||||
At October 31, 2013 and 2012, the carrying value of investments included a net unrealized gain of $2.0 million and $2.5 million, respectively, which is included in accumulated other comprehensive income. Realized gains and losses on investments are determined on the specific identification basis. There were no material net realized gains or losses during the three months ended October 31, 2013 and 2012. Investments with a carrying value of $7.4 million were on deposit with various state insurance departments at both October 31, 2013 and 2012, respectively, as required by law. | ||||||||||||||
Debt securities outstanding as of October 31, 2013 mature as follows (in thousands): | ||||||||||||||
Cost | Fair Value | |||||||||||||
Less than one year | $ | 3,272 | $ | 3,319 | ||||||||||
Year two through year five | 10,101 | 10,911 | ||||||||||||
Year six through year ten | 6,149 | 6,420 | ||||||||||||
After ten years | 63 | 71 | ||||||||||||
$ | 19,585 | $ | 20,721 | |||||||||||
LONGTERM_DEBT
LONG-TERM DEBT | 3 Months Ended | ||||||||||
Oct. 31, 2013 | |||||||||||
LONG-TERM DEBT | ' | ||||||||||
LONG-TERM DEBT | ' | ||||||||||
4. LONG-TERM DEBT | |||||||||||
Long-term debt consists of the following (in thousands): | |||||||||||
October 31, | |||||||||||
2013 | 2012 | ||||||||||
Revolving credit agreement | $ | 423,000 | $ | 440,700 | |||||||
Senior secured term loan | 80,000 | 80,000 | |||||||||
Capital lease obligations | 2,575 | 3,467 | |||||||||
$ | 505,575 | $ | 524,167 | ||||||||
Amended and Restated Revolving Credit Agreement | |||||||||||
On July 24, 2012, we amended and restated our revolving credit agreement (the "Amended Credit Agreement") with Bank of America, N.A. and certain other lenders. The Amended Credit Agreement totals $665 million, including a $15 million first-in, last-out facility (the "FILO Facility"), and matures in July 2017. Borrowings under the Amended Credit Agreement (excluding the FILO Facility) are limited to a borrowing base equal to 90 percent of the appraised liquidation value of eligible inventory (less certain reserves that may be established under the agreement), plus 90 percent of eligible credit card receivables. Borrowings under the FILO Facility are limited to a borrowing base equal to the lesser of: (i) 2.5 percent of the appraised liquidation value of eligible inventory or (ii) $15 million. The Amended Credit Agreement is secured by a first priority security interest and lien on merchandise inventory, credit card receivables and certain other assets and a second priority security interest and lien on all other assets. | |||||||||||
Based on the most recent inventory appraisal, the monthly borrowing rates calculated from the cost of eligible inventory is 83 to 84 percent for the period of November through December 2013, 68 to 73 percent for the period of January through September 2014 and 82 percent for the period of October 2014. | |||||||||||
Borrowings under the Amended Credit Agreement (excluding the FILO Facility) bear interest at either: (i) LIBOR plus the applicable margin (ranging from 175 to 225 basis points) or (ii) the base rate (as defined in the Amended Credit Agreement) plus the applicable margin (ranging from 75 to 125 basis points). Borrowings under the FILO Facility bear interest at either: (i) LIBOR plus the applicable margin (ranging from 350 to 400 basis points) or (ii) the base rate plus the applicable margin (ranging from 250 to 300 basis points). We are also required to pay a quarterly unused commitment fee of 37.5 basis points based on the preceding quarter's unused commitment. | |||||||||||
If excess availability (as defined in the Amended Credit Agreement) falls below certain levels we will be required to maintain a minimum fixed charge coverage ratio of 1.0. Borrowing availability was approximately $231 million as of October 31, 2013, which exceeded the excess availability requirement by $166 million. The fixed charge coverage ratio was 2.64 as of October 31, 2013. The Amended Credit Agreement contains various other covenants including restrictions on the incurrence of certain indebtedness, payment of dividends, liens, investments, acquisitions and asset sales. As of October 31, 2013, we were in compliance with all covenants. | |||||||||||
We incurred debt issuance costs associated with the revolving credit agreement totaling $12.1 million, which consisted of $5.6 million of costs related to the Amended Credit Agreement and $6.5 million of unamortized costs associated with the prior agreement. The debt issuance costs are included in other assets in the accompanying consolidated balance sheets and are amortized to interest expense on a straight-line basis over the five-year life of the agreement. | |||||||||||
Interest Rate Swap Agreements | |||||||||||
In September 2013, we executed interest rate swaps with Bank of America, N.A. to hedge the variability of cash flows resulting from fluctuations in the one-month LIBOR associated with our Amended Credit Agreement. The interest rate swaps replaced the one-month LIBOR with the fixed interest rates shown in the table below and are settled monthly. The swaps qualify as cash flow hedges and, to the extent effective, changes in their fair values are recorded in accumulated other comprehensive income in the consolidated balance sheet. The changes in fair values are reclassified from accumulated other comprehensive income to interest expense in the same period that the hedged items affect interest expense. | |||||||||||
Interest rate swaps as of October 31, 2013 are as follows: | |||||||||||
Period | Notional Amount | Fixed | Fair Value | ||||||||
(in thousands) | Interest Rate | (in thousands) | |||||||||
October 2013 - July 2014 | $ | 215,000 | 0.29 | % | $ | 144 | |||||
August 2014 - July 2016 | $ | 215,000 | 1.19 | % | 2,372 | ||||||
$ | 2,516 | ||||||||||
The change in the fair value of the interest rate swaps for the three months ended October 31, 2013 totaled $2.5 million and is included as an unrealized loss in other comprehensive income. There were no material amounts reclassified from accumulated other comprehensive income to interest expense during the three months ended October 31, 2013. The current portion of the fair value of the interest rate swaps totaled $0.5 million and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheet. The current portion represents the amount that is expected to be reclassified from other comprehensive income to interest expense over the next 12 months. The non-current portion of the fair value of the interest rate swaps totaled $2.0 million and is included in other liabilities in the accompanying consolidated balance sheet. | |||||||||||
Amended and Restated Senior Secured Term Loan | |||||||||||
On July 24, 2012, we amended and restated our senior secured term loan (the "Amended Term Loan") with Z Investment Holdings, LLC, an affiliate of Golden Gate Capital. The Amended Term Loan totals $80.0 million, matures in July 2017 and is subject to a borrowing base equal to: (i) 107.5 percent of the appraised liquidation value of eligible inventory plus (ii) 100 percent of credit card receivables and an amount equal to the lesser of $40 million or 100 percent of the appraised liquidation value of intellectual property minus (iii) the borrowing base under the Amended Credit Agreement. In the event the outstanding principal under the Amended Term Loan exceeds the Amended Term Loan borrowing base, availability under the Amended Credit Agreement would be reduced by the excess. As of October 31, 2013, the outstanding principal under the Amended Term Loan did not exceed the borrowing base. The Amended Term Loan is secured by a second priority security interest on merchandise inventory and credit card receivables and a first priority security interest on substantially all other assets. | |||||||||||
Borrowings under the Amended Term Loan bear interest at 11 percent payable on a quarterly basis. We may repay all or any portion of the Amended Term Loan with the following penalty prior to maturity: (i) the present value of the required interest payments that would have been made if the prepayment had not occurred during the first year; (ii) 4 percent during the second year; (iii) 3 percent during the third year; (iv) 2 percent during the fourth year and (v) no penalty in the fifth year. The Amended Credit Agreement restricts our ability to prepay the Amended Term Loan if the fixed charge coverage ratio is not equal to or greater than 1.0 after giving effect to the prepayment. | |||||||||||
The Amended Term Loan includes various covenants which are consistent with the covenants in the Amended Credit Agreement, including restrictions on the incurrence of certain indebtedness, payment of dividends, liens, investments, acquisitions, asset sales and the requirement to maintain a minimum fixed charge coverage ratio of 1.0 if excess availability thresholds under the Amended Credit Agreement are not maintained. As of October 31, 2013, we were in compliance with all covenants. | |||||||||||
We incurred costs associated with the Amended Term Loan totaling $4.4 million, of which approximately $2 million was recorded in interest expense during the fourth quarter of fiscal year 2012. The remaining $2.4 million consists of debt issuance costs included in other assets in the accompanying consolidated balance sheet and are amortized to interest expense on a straight-line basis over the five-year life of the agreement. | |||||||||||
Warrant and Registration Rights Agreement | |||||||||||
In connection with the execution of the senior secured term loan in May 2010, we entered into a Warrant and Registration Rights Agreement (the "Warrant Agreement") with Z Investment Holdings, LLC ("Z Investment"). Under the terms of the Warrant Agreement, Z Investment holds 11.1 million warrants (the "Warrants") to purchase shares of our common stock, on a one-for-one basis, for an exercise price of $2.00 per share. The Warrants, which are currently exercisable and expire in May 2017, represented approximately 25 percent of our common stock on a fully diluted basis (including the shares issuable upon exercise of the Warrants and excluding certain out-of-the-money stock options) as of the date of the issuance. The number of shares and exercise price are subject to customary antidilution protection. The Warrant Agreement also entitles the holder to designate two, and in certain circumstances three, directors to our board. | |||||||||||
The holders of the Warrants may, at their option, request that we register all or part of the common stock issuable under the Warrant Agreement for resale. In September 2013, Z Investment exercised their right to request that we register the common stock and on October 2, 2013 we filed a shelf registration statement on Form S-3 which has been declared effective by the SEC. | |||||||||||
Capital Lease Obligations | |||||||||||
We enter into capital leases related to vehicles for our field management. The vehicles are included in property and equipment in the accompanying consolidated balance sheets and are depreciated over a four-year life. Capital leases, net of accumulated depreciation, included in property and equipment as of October 31, 2013 and 2012 totaled $2.5 million and $3.4 million, respectively. | |||||||||||
OTHER_GAINS
OTHER GAINS | 3 Months Ended |
Oct. 31, 2013 | |
OTHER GAINS | ' |
OTHER GAINS | ' |
5. OTHER GAINS | |
Beginning in June 2004, various class-action lawsuits were filed alleging that the De Beers group violated U.S. state and federal antitrust, consumer protection and unjust enrichment laws. During the first quarter of fiscal year 2013, we received proceeds totaling $1.9 million as a result of a settlement reached in the lawsuit. | |
We recorded lease termination charges during the first quarter of fiscal year 2013 totaling $0.1 million related to certain store closures in Fine Jewelry. The lease termination charges for leases where the Company has finalized settlement negotiations with the landlords are based on the amounts agreed upon in the termination agreement. If a settlement has not been reached for a lease, the charges are based on the present value of the remaining lease rentals, including common area maintenance and other charges, reduced by estimated sublease rentals that could reasonably be obtained. There was no material lease reserve balance associated with closed stores at October 31, 2013 and 2012. | |
LOSS_PER_COMMON_SHARE
LOSS PER COMMON SHARE | 3 Months Ended |
Oct. 31, 2013 | |
LOSS PER COMMON SHARE | ' |
LOSS PER COMMON SHARE | ' |
6. LOSS PER COMMON SHARE | |
Basic loss per common share is computed by dividing net loss 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. For the calculation of diluted earnings per share, the basic weighted-average number of shares is increased by the dilutive effect of stock options, restricted share awards and warrants issued in connection with the senior secured term loan determined using the Treasury Stock method. There were antidilutive stock options and restricted share awards totaling 4.3 million and 5.0 million for the three months ended October 31, 2013 and 2012, respectively. There were antidilutive warrants totaling 11.1 million for both the three months ended October 31, 2013 and 2012. | |
During the three months ended October 31, 2013 and 2012, we incurred a net loss of $27.3 million and $28.3 million, respectively. A net loss causes all outstanding stock options, restricted share awards and warrants to be antidilutive. As a result, the basic and dilutive losses per common share are the same for each of the three month periods presented. | |
ACCUMULATED_OTHER_COMPREHENSIV
ACCUMULATED OTHER COMPREHENSIVE INCOME | 3 Months Ended | |||||||
Oct. 31, 2013 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME | ' | |||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME | ' | |||||||
7. ACCUMULATED OTHER COMPREHENSIVE INCOME | ||||||||
The following table includes detail regarding changes in the composition of accumulated other comprehensive income (in thousands): | ||||||||
Three Months Ended | ||||||||
October 31, | ||||||||
2013 | 2012 | |||||||
Beginning of period | $ | 47,015 | $ | 53,369 | ||||
Foreign currency translation adjustment | (3,233 | ) | 514 | |||||
Unrealized loss on interest rate swaps | (2,516 | ) | — | |||||
Unrealized gain (loss) on securities, net | 74 | (55 | ) | |||||
End of period | $ | 41,340 | $ | 53,828 | ||||
There were no material amounts reclassified from accumulated other comprehensive income to net loss during the periods presented. | ||||||||
INCOME_TAXES
INCOME TAXES | 3 Months Ended |
Oct. 31, 2013 | |
INCOME TAXES | ' |
INCOME TAXES | ' |
8. INCOME TAXES | |
We are required to assess the available positive and negative evidence to estimate if sufficient future income will be generated to utilize deferred tax assets. A significant piece of negative evidence that we consider is cumulative losses (generally defined as losses before income taxes) incurred over the most recent three-year period. Such evidence limits our ability to consider other subjective evidence such as our projections for future growth. As of October 31, 2013 and 2012, cumulative losses were incurred over the applicable three-year period. | |
Our valuation allowances totaled $93.2 million and $111.0 million as of October 31, 2013 and 2012, respectively. The valuation allowances were established due to the uncertainty of our ability to utilize certain federal, state and foreign net operating loss carryforwards in the future. The amount of the deferred tax asset considered realizable could be adjusted if negative evidence, such as three-year cumulative losses, no longer exists and additional consideration is given to our growth projections. | |
SEGMENTS
SEGMENTS | 3 Months Ended | |||||||
Oct. 31, 2013 | ||||||||
SEGMENTS | ' | |||||||
SEGMENTS | ' | |||||||
9. SEGMENTS | ||||||||
We report our operations under three business segments: Fine Jewelry, Kiosk Jewelry, and All Other (see Note 1). All corresponding items of segment information in prior periods have been presented consistently. Management's expectation is that overall economics of each of our major brands within each reportable segment will be similar over time. | ||||||||
We use earnings before unallocated corporate overhead, interest and taxes but include an internal charge for inventory carrying cost to evaluate segment profitability. Unallocated costs before income taxes include corporate employee-related costs, administrative costs, information technology costs, corporate facilities costs and depreciation and amortization. Income tax information by segment is not included as taxes are calculated at a company-wide level and not allocated to each segment. | ||||||||
Three Months Ended | ||||||||
October 31, | ||||||||
Selected Financial Data by Segment | 2013 | 2012 | ||||||
(amounts in thousands) | ||||||||
Revenues: | ||||||||
Fine Jewelry(a) | $ | 313,699 | $ | 306,960 | ||||
Kiosk | 46,199 | 47,818 | ||||||
All Other | 2,717 | 2,690 | ||||||
Total revenues | $ | 362,615 | $ | 357,468 | ||||
Depreciation and amortization: | ||||||||
Fine Jewelry | $ | 5,059 | $ | 5,521 | ||||
Kiosk | 577 | 739 | ||||||
All Other | — | — | ||||||
Unallocated | 2,025 | 2,386 | ||||||
Total depreciation and amortization | $ | 7,661 | $ | 8,646 | ||||
Operating loss: | ||||||||
Fine Jewelry | $ | (12,001 | ) | $ | (16,702 | ) | ||
Kiosk | (2,555 | ) | (1,749 | ) | ||||
All Other | 1,192 | 812 | ||||||
Unallocated(b) | (8,668 | ) | (5,364 | ) | ||||
Total operating loss | $ | (22,032 | ) | $ | (23,003 | ) | ||
(a) | ||||||||
Includes $62.9 million and $63.0 million for the three months ended October 31, 2013 and 2012, respectively, related to foreign operations. | ||||||||
(b) | ||||||||
Includes credits of $15.8 million and $15.1 million for the three months ended October 31, 2013 and 2012, respectively, to offset internal carrying costs charged to the segments. The three months ended October 31, 2012 also includes a gain totaling $1.9 million related to the De Beers settlement. | ||||||||
CONTINGENCIES
CONTINGENCIES | 3 Months Ended |
Oct. 31, 2013 | |
CONTINGENCIES | ' |
CONTINGENCIES | ' |
10. CONTINGENCIES | |
The Company is a defendant in three purported class action lawsuits, Tessa Hodge v. Zale Delaware, Inc., d/b/a Piercing Pagoda which was filed on April 23, 2013 in the Superior Court of the State of California, County of San Bernardino, Naomi Tapia v. Zale which was filed on July 3, 2013 in the U.S. District Court, Southern District of California, and Melissa Roberts v. Zale Delaware, Inc. which was filed on October 7, 2013 in the Superior Court of the State of California, County of Los Angeles. All three cases include allegations that the Company violated various wage and hour labor laws. Relief is sought on behalf of current and former Piercing Pagoda and Zales employees. The lawsuits seek to recover damages, penalties and attorneys' fees as a result of the alleged violations. The Company is investigating the underlying allegations and intends to vigorously defend its position against them. The Company cannot reasonably estimate the potential loss or range of loss, if any, for the lawsuits. | |
We are involved in legal and governmental proceedings as part of the normal course of our business. Reserves have been established based on management's best estimates of our potential liability in these matters. These estimates have been developed in consultation with internal and external counsel and are based on a combination of litigation and settlement strategies. Management believes that such litigation and claims will be resolved without material effect on our financial position or results of operations. | |
DEFERRED_REVENUE
DEFERRED REVENUE | 3 Months Ended | |||||||
Oct. 31, 2013 | ||||||||
DEFERRED REVENUE | ' | |||||||
DEFERRED REVENUE | ' | |||||||
11. DEFERRED REVENUE | ||||||||
We offer our Fine Jewelry guests lifetime warranties on certain products that cover sizing and breakage with an option to purchase theft protection for a two-year period. Revenues related to lifetime warranty sales are recognized in proportion to when the expected costs will be incurred, which we estimate to be over an eight-year period. A significant change in estimates related to the time period or pattern in which warranty-related costs are expected to be incurred could adversely impact our revenues and earnings. Revenues related to the optional theft protection are recognized over the two-year contract period on a straight-line basis. We also offer our Fine Jewelry guests a two-year watch warranty and our Fine Jewelry and Kiosk Jewelry guests a one-year warranty that covers breakage. The revenue from the two-year watch warranty and one-year breakage warranty is recognized on a straight-line basis over the respective contract terms. | ||||||||
The change in deferred revenue associated with the sale of warranties is as follows (in thousands): | ||||||||
Three Months Ended | ||||||||
October 31, | ||||||||
2013 | 2012 | |||||||
Deferred revenue, beginning of period | $ | 191,245 | $ | 208,516 | ||||
Warranties sold(a) | 25,934 | 24,980 | ||||||
Revenue recognized | (33,955 | ) | (34,257 | ) | ||||
Deferred revenue, end of period | $ | 183,224 | $ | 199,239 | ||||
(a) | ||||||||
Warranty sales for the three months ended October 31, 2013 include $0.5 million related to the depreciation in the Canadian currency rate on the beginning of the period deferred revenue balance. The change in the Canadian currency rate did not have a significant impact on the beginning of the period deferred revenue balance for the three months ended October 31, 2012. | ||||||||
Revenues associated with warranties during the three months ended October 31, 2013 and 2012 totaled $34.0 million and $34.3 million, respectively. Gross margin associated with warranties during the three months ended October 31, 2013 and 2012 totaled $27.4 million and $28.1 million, respectively. | ||||||||
BASIS_OF_PRESENTATION_Policies
BASIS OF PRESENTATION (Policies) | 3 Months Ended |
Oct. 31, 2013 | |
BASIS OF PRESENTATION | ' |
Reclassification | ' |
Reclassification. Certain prior year amounts have been reclassified in the accompanying consolidated financial statements to conform to our fiscal year 2014 presentation. |
FAIR_VALUE_MEASUREMENTS_Tables
FAIR VALUE MEASUREMENTS (Tables) | 3 Months Ended | ||||||||||
Oct. 31, 2013 | |||||||||||
FAIR VALUE MEASUREMENTS | ' | ||||||||||
Schedule of assets and liabilities that are measured at fair value on a recurring basis | ' | ||||||||||
The following tables include our assets and liabilities that are measured at fair value on a recurring basis (in thousands): | |||||||||||
Fair Value as of October 31, | |||||||||||
2013 | |||||||||||
Level 1 | Level 2 | Level 3 | |||||||||
Assets | |||||||||||
U.S. Treasury securities | $ | 14,430 | $ | — | $ | — | |||||
U.S. government agency securities | — | 2,102 | — | ||||||||
Corporate bonds and notes | — | 4,189 | — | ||||||||
Corporate equity securities | 2,601 | — | — | ||||||||
$ | 17,031 | $ | 6,291 | $ | — | ||||||
Liabilities | |||||||||||
Interest rate swaps | $ | — | $ | 2,516 | $ | — | |||||
Fair Value as of October 31, | |||||||||||
2012 | |||||||||||
Level 1 | Level 2 | Level 3 | |||||||||
Assets | |||||||||||
U.S. Treasury securities | $ | 22,623 | $ | — | $ | — | |||||
U.S. government agency securities | — | 2,875 | — | ||||||||
Corporate bonds and notes | — | 1,018 | — | ||||||||
Corporate equity securities | 4,133 | — | — | ||||||||
$ | 26,756 | $ | 3,893 | $ | — | ||||||
INVESTMENTS_Tables
INVESTMENTS (Tables) | 3 Months Ended | |||||||||||||
Oct. 31, 2013 | ||||||||||||||
INVESTMENTS | ' | |||||||||||||
Schedule of investments | ' | |||||||||||||
Our investments consist of the following (in thousands): | ||||||||||||||
October 31, 2013 | October 31, 2012 | |||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||
U.S. Treasury securities | $ | 13,497 | $ | 14,430 | $ | 21,092 | $ | 22,623 | ||||||
U.S. government agency securities | 1,989 | 2,102 | 2,657 | 2,875 | ||||||||||
Corporate bonds and notes | 4,099 | 4,189 | 906 | 1,018 | ||||||||||
Corporate equity securities | 1,784 | 2,601 | 3,501 | 4,133 | ||||||||||
$ | 21,369 | $ | 23,322 | $ | 28,156 | $ | 30,649 | |||||||
Schedule of debt securities outstanding maturities | ' | |||||||||||||
Debt securities outstanding as of October 31, 2013 mature as follows (in thousands): | ||||||||||||||
Cost | Fair Value | |||||||||||||
Less than one year | $ | 3,272 | $ | 3,319 | ||||||||||
Year two through year five | 10,101 | 10,911 | ||||||||||||
Year six through year ten | 6,149 | 6,420 | ||||||||||||
After ten years | 63 | 71 | ||||||||||||
$ | 19,585 | $ | 20,721 | |||||||||||
LONGTERM_DEBT_Tables
LONG-TERM DEBT (Tables) | 3 Months Ended | ||||||||||
Oct. 31, 2013 | |||||||||||
LONG-TERM DEBT | ' | ||||||||||
Schedule of long-term debt | ' | ||||||||||
Long-term debt consists of the following (in thousands): | |||||||||||
October 31, | |||||||||||
2013 | 2012 | ||||||||||
Revolving credit agreement | $ | 423,000 | $ | 440,700 | |||||||
Senior secured term loan | 80,000 | 80,000 | |||||||||
Capital lease obligations | 2,575 | 3,467 | |||||||||
$ | 505,575 | $ | 524,167 | ||||||||
Schedule of interest rate swaps | ' | ||||||||||
Period | Notional Amount | Fixed | Fair Value | ||||||||
(in thousands) | Interest Rate | (in thousands) | |||||||||
October 2013 - July 2014 | $ | 215,000 | 0.29 | % | $ | 144 | |||||
August 2014 - July 2016 | $ | 215,000 | 1.19 | % | 2,372 | ||||||
$ | 2,516 | ||||||||||
ACCUMULATED_OTHER_COMPREHENSIV1
ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables) | 3 Months Ended | |||||||
Oct. 31, 2013 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME | ' | |||||||
Schedule of composition of accumulated other comprehensive income | ' | |||||||
The following table includes detail regarding changes in the composition of accumulated other comprehensive income (in thousands): | ||||||||
Three Months Ended | ||||||||
October 31, | ||||||||
2013 | 2012 | |||||||
Beginning of period | $ | 47,015 | $ | 53,369 | ||||
Foreign currency translation adjustment | (3,233 | ) | 514 | |||||
Unrealized loss on interest rate swaps | (2,516 | ) | — | |||||
Unrealized gain (loss) on securities, net | 74 | (55 | ) | |||||
End of period | $ | 41,340 | $ | 53,828 | ||||
SEGMENTS_Tables
SEGMENTS (Tables) | 3 Months Ended | |||||||
Oct. 31, 2013 | ||||||||
SEGMENTS | ' | |||||||
Schedule of selected financial data by segment | ' | |||||||
Three Months Ended | ||||||||
October 31, | ||||||||
Selected Financial Data by Segment | 2013 | 2012 | ||||||
(amounts in thousands) | ||||||||
Revenues: | ||||||||
Fine Jewelry(a) | $ | 313,699 | $ | 306,960 | ||||
Kiosk | 46,199 | 47,818 | ||||||
All Other | 2,717 | 2,690 | ||||||
Total revenues | $ | 362,615 | $ | 357,468 | ||||
Depreciation and amortization: | ||||||||
Fine Jewelry | $ | 5,059 | $ | 5,521 | ||||
Kiosk | 577 | 739 | ||||||
All Other | — | — | ||||||
Unallocated | 2,025 | 2,386 | ||||||
Total depreciation and amortization | $ | 7,661 | $ | 8,646 | ||||
Operating loss: | ||||||||
Fine Jewelry | $ | (12,001 | ) | $ | (16,702 | ) | ||
Kiosk | (2,555 | ) | (1,749 | ) | ||||
All Other | 1,192 | 812 | ||||||
Unallocated(b) | (8,668 | ) | (5,364 | ) | ||||
Total operating loss | $ | (22,032 | ) | $ | (23,003 | ) | ||
(a) | ||||||||
Includes $62.9 million and $63.0 million for the three months ended October 31, 2013 and 2012, respectively, related to foreign operations. | ||||||||
(b) | ||||||||
Includes credits of $15.8 million and $15.1 million for the three months ended October 31, 2013 and 2012, respectively, to offset internal carrying costs charged to the segments. The three months ended October 31, 2012 also includes a gain totaling $1.9 million related to the De Beers settlement. | ||||||||
DEFERRED_REVENUE_Tables
DEFERRED REVENUE (Tables) | 3 Months Ended | |||||||
Oct. 31, 2013 | ||||||||
DEFERRED REVENUE | ' | |||||||
Schedule of change in deferred revenue associated with the sale of warranties | ' | |||||||
The change in deferred revenue associated with the sale of warranties is as follows (in thousands): | ||||||||
Three Months Ended | ||||||||
October 31, | ||||||||
2013 | 2012 | |||||||
Deferred revenue, beginning of period | $ | 191,245 | $ | 208,516 | ||||
Warranties sold(a) | 25,934 | 24,980 | ||||||
Revenue recognized | (33,955 | ) | (34,257 | ) | ||||
Deferred revenue, end of period | $ | 183,224 | $ | 199,239 | ||||
(a) | ||||||||
Warranty sales for the three months ended October 31, 2013 include $0.5 million related to the depreciation in the Canadian currency rate on the beginning of the period deferred revenue balance. The change in the Canadian currency rate did not have a significant impact on the beginning of the period deferred revenue balance for the three months ended October 31, 2012. | ||||||||
BASIS_OF_PRESENTATION_Details
BASIS OF PRESENTATION (Details) | 3 Months Ended |
Oct. 31, 2013 | |
item | |
Basis of Presentation | ' |
Number of reportable segments | 3 |
Number of subsidiaries engaged in providing credit insurance to credit customers | 3 |
Fine Jewelry | ' |
Basis of Presentation | ' |
Number of core national brands | 3 |
Number of regional brands | 2 |
Specialty retail jewelry stores | ' |
Basis of Presentation | ' |
Number of stores | 1,057 |
Kiosk stores | ' |
Basis of Presentation | ' |
Number of stores | 625 |
FAIR_VALUE_MEASUREMENTS_Detail
FAIR VALUE MEASUREMENTS (Details) (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Oct. 31, 2013 | Oct. 31, 2012 |
Liabilities | ' | ' |
Impairments related to goodwill and property and equipment | $0 | $0 |
Recurring basis | Level 1 | ' | ' |
Assets | ' | ' |
Total assets | 17,031 | 26,756 |
Recurring basis | Level 1 | U.S. Treasury securities | ' | ' |
Assets | ' | ' |
Investments | 14,430 | 22,623 |
Recurring basis | Level 1 | Corporate equity securities | ' | ' |
Assets | ' | ' |
Investments | 2,601 | 4,133 |
Recurring basis | Level 2 | ' | ' |
Assets | ' | ' |
Total assets | 6,291 | 3,893 |
Recurring basis | Level 2 | Interest rate swaps | ' | ' |
Liabilities | ' | ' |
Derivative | 2,516 | ' |
Recurring basis | Level 2 | U.S. government agency securities | ' | ' |
Assets | ' | ' |
Investments | 2,102 | 2,875 |
Recurring basis | Level 2 | Corporate bonds and notes | ' | ' |
Assets | ' | ' |
Investments | $4,189 | $1,018 |
INVESTMENTS_Details
INVESTMENTS (Details) (USD $) | Oct. 31, 2013 | Oct. 31, 2012 |
INVESTMENTS | ' | ' |
Net unrealized gain | $2,000,000 | $2,500,000 |
Carrying value of investments on deposit with various state insurance departments | 7,400,000 | 7,400,000 |
Debt securities outstanding maturities at cost | ' | ' |
Less than one year | 3,272,000 | ' |
Year two through year five | 10,101,000 | ' |
Year six through year ten | 6,149,000 | ' |
After ten years | 63,000 | ' |
Total debt securities outstanding amortized, cost | 19,585,000 | ' |
Debt securities outstanding maturities measured at fair value | ' | ' |
Less than one year | 3,319,000 | ' |
Year two through year five | 10,911,000 | ' |
Year six through year ten | 6,420,000 | ' |
After ten years | 71,000 | ' |
Total debt securities outstanding measured at fair value | 20,721,000 | ' |
Cost | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities, Amortized Cost | 21,369,000 | 28,156,000 |
Fair Value | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities Noncurrent, Fair Value | 23,322,000 | 30,649,000 |
U.S. Treasury securities | Cost | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities, Amortized Cost | 13,497,000 | 21,092,000 |
U.S. Treasury securities | Fair Value | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities Noncurrent, Fair Value | 14,430,000 | 22,623,000 |
U.S. government agency securities | Cost | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities, Amortized Cost | 1,989,000 | 2,657,000 |
U.S. government agency securities | Fair Value | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities Noncurrent, Fair Value | 2,102,000 | 2,875,000 |
Corporate bonds and notes | Cost | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities, Amortized Cost | 4,099,000 | 906,000 |
Corporate bonds and notes | Fair Value | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities Noncurrent, Fair Value | 4,189,000 | 1,018,000 |
Corporate equity securities | Cost | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities, Amortized Cost | 1,784,000 | 3,501,000 |
Corporate equity securities | Fair Value | ' | ' |
INVESTMENTS | ' | ' |
Available for Sale Securities Noncurrent, Fair Value | $2,601,000 | $4,133,000 |
LONGTERM_DEBT_Details
LONG-TERM DEBT (Details) (USD $) | Oct. 31, 2013 | Jul. 31, 2013 | Oct. 31, 2012 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2012 | Jul. 31, 2012 | Oct. 31, 2013 | Jul. 24, 2012 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Jul. 31, 2012 | Jul. 24, 2012 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Jul. 31, 2012 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2012 | Jul. 31, 2012 | Oct. 31, 2013 | Jul. 31, 2012 | Jul. 24, 2012 | Oct. 31, 2013 | Oct. 31, 2013 | Oct. 31, 2012 |
Interest rate swaps | Interest rate swaps | Interest rate swaps | Interest rate swaps | Interest rate swaps | Revolving credit agreement | Revolving credit agreement | Amended Credit Agreement | Amended Credit Agreement | Amended Credit Agreement | Amended Credit Agreement | Amended Credit Agreement | Amended Credit Agreement | Amended Credit Agreement | Amended Credit Agreement | Amended Credit Agreement | FILO Facility | FILO Facility | FILO Facility | FILO Facility | FILO Facility | FILO Facility | FILO Facility | FILO Facility | Amended Credit Agreement (excluding the FILO Facility) | Amended Credit Agreement (excluding the FILO Facility) | Amended Credit Agreement (excluding the FILO Facility) | Amended Credit Agreement (excluding the FILO Facility) | Amended Credit Agreement (excluding the FILO Facility) | Amended Credit Agreement (excluding the FILO Facility) | Amended Credit Agreement (excluding the FILO Facility) | Revolving credit prior to amended and restated revolving credit agreement | Senior Secured Term Loan | Senior Secured Term Loan | Senior secured term loan amended July 24, 2012 | Senior secured term loan amended July 24, 2012 | Senior secured term loan amended July 24, 2012 | Senior secured term loan amended July 24, 2012 | Senior secured term loan amended July 24, 2012 | Capital lease obligations | Capital lease obligations | ||||
Cash flow hedges | Cash flow hedges | Cash flow hedges | October 2013 - July 2014 | August 2014 - July 2016 | Minimum | November through December 2013 | November through December 2013 | January through September 2014 | January through September 2014 | Oct-14 | LIBOR | Base rate | Minimum | Minimum | Maximum | Maximum | LIBOR | Base rate | Minimum | Minimum | Maximum | Maximum | Minimum | |||||||||||||||||||||
Accounts payable and accrued liabilities | Other liabilities | Cash flow hedges | Cash flow hedges | Minimum | Maximum | Minimum | Maximum | LIBOR | Base rate | LIBOR | Base rate | LIBOR | Base rate | LIBOR | Base rate | |||||||||||||||||||||||||||||
Long-term debt | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Long-term debt | $505,575,000 | $410,050,000 | $524,167,000 | ' | ' | ' | ' | ' | $423,000,000 | $440,700,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $80,000,000 | $80,000,000 | ' | ' | ' | ' | ' | $2,575,000 | $3,467,000 |
Maximum borrowing capacity | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 665,000,000 | ' | ' | ' | ' | ' | ' | ' | 15,000,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Maturity date | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 24-Jul-17 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Borrowing capacity description | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 'Borrowings under the Amended Credit Agreement (excluding the FILO Facility) are limited to a borrowing base equal to 90 percent of the appraised liquidation value of eligible inventory (less certain reserves that may be established under the agreement), plus 90 percent of eligible credit card receivables. Borrowings under the FILO Facility are limited to a borrowing base equal to the lesser of: (i) 2.5 percent of the appraised liquidation value of eligible inventory or (ii) 15 million. The Amended Credit Agreement is secured by a first priority security interest and lien on merchandise inventory, credit card receivables and certain other assets and a second priority security interest and lien on all other assets. Based on the most recent inventory appraisal, the monthly borrowing rates calculated from the cost of eligible inventory is 83 to 84 percent for the period of November through December 2013, 68 to 73 percent for the period of January through September 2014 and 82 percent for the period of October 2014. | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Percentage of appraised liquidation value of eligible inventory used to calculate cap amount | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 2.50% | ' | ' | ' | ' | ' | ' | ' | 90.00% | ' | ' | ' | ' | ' | ' | ' | ' | ' | 107.50% | ' | ' | ' | ' | ' | ' |
Percentage of eligible credit card receivables | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 90.00% | ' | ' | ' | ' | ' | ' | ' | ' | ' | 100.00% | ' | ' | ' | ' | ' | ' |
Percentage of cost of eligible inventory used to calculate monthly borrowing rates | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 83.00% | 84.00% | 68.00% | 73.00% | 82.00% | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Variable interest rate base | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 'LIBOR | 'Base rate | ' | ' | ' | ' | ' | 'LIBOR | 'Base rate | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Variable interest rate margin (as a percent) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 3.50% | 2.50% | 4.00% | 3.00% | ' | ' | ' | 1.75% | 0.75% | 2.25% | 1.25% | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Quarterly unused commitment fee (as a percent) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 0.38% | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Covenant terms of revolving credit facility | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 'If excess availability (as defined in the Amended Credit Agreement) falls below certain levels we will be required to maintain a minimum fixed charge coverage ratio of 1.0. Borrowing availability was approximately $231 million as of October 31, 2013, which exceeded the excess availability requirement by $166 million. The fixed charge coverage ratio was 2.64 as of October 31, 2013. The Amended Credit Agreement contains various other covenants including restrictions on the incurrence of certain indebtedness, payment of dividends, liens, investments, acquisitions and asset sales. As of October 31, 2013, we were in compliance with all covenants. | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Fixed charge coverage ratio | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 2.64 | ' | 1 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 1 | ' | ' |
Remaining borrowing capacity | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 231,000,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Remaining borrowing capacity in excess of minimum availability requirement | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 166,000,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Debt issuance costs | ' | ' | ' | ' | ' | ' | ' | ' | 12,100,000 | ' | ' | 5,600,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 4,400,000 | ' | ' | ' | ' |
Unamortized debt issuance costs | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 6,500,000 | ' | ' | ' | 2,400,000 | ' | ' | ' | ' | ' |
Life of the credit agreement | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | '5 years | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | '5 years | ' | ' | ' | ' | ' |
Interest rate swaps disclosures | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Notional Amount | ' | ' | ' | ' | ' | ' | 215,000,000 | 215,000,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Fixed Interest Rate | ' | ' | ' | ' | ' | ' | 0.29% | 1.19% | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Fair Value | ' | ' | ' | 2,516,000 | 500,000 | 2,000,000 | 144,000 | 2,372,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Principal amount of debt issued | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 80,000,000 | ' | ' | ' |
Term loan restrictions on revolving credit agreement | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 'The Amended Term Loan totals $80.0 million, matures in July 2017 and is subject to a borrowing base equal to: (i) 107.5 percent of the appraised liquidation value of eligible inventory plus (ii) 100 percent of credit card receivables and an amount equal to the lesser of $40 million or 100 percent of the appraised liquidation value of intellectual property minus (iii) the borrowing base under the Amended Credit Agreement. In the event the outstanding principal under the Amended Term Loan exceeds the Amended Term Loan borrowing base, availability under the Amended Credit Agreement would be reduced by the excess. As of October 31, 2013, the outstanding principal under the Amended Term Loan did not exceed the borrowing base. | ' | ' | ' | ' | ' | ' |
Borrowing cap amount attributable to appraised liquidation value of intellectual property | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 40,000,000 | ' | ' | ' |
Percentage of appraised liquidation value of intellectual property used to calculate cap amount | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 100.00% | ' | ' | ' | ' | ' | ' |
Interest rate (as a percent) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 11.00% | ' | ' | ' | ' | ' |
Penalty on repayment of debt during the second year (as a percent) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 4.00% | ' | ' | ' | ' | ' |
Penalty on repayment of debt during the third year (as a percent) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 3.00% | ' | ' | ' | ' | ' |
Penalty on repayment of debt during the fourth year (as a percent) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 2.00% | ' | ' | ' | ' | ' |
Penalty on repayment of debt during the fifth year (as a percent) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 0.00% | ' | ' | ' | ' | ' |
Covenant terms of senior secured term loan | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 'The Amended Term Loan includes various covenants which are consistent with the covenants in the Amended Credit Agreement, including restrictions on the incurrence of certain indebtedness, payment of dividends, liens, investments, acquisitions, asset sales and the requirement to maintain a minimum fixed charge coverage ratio of 1.0 if excess availability thresholds under the Amended Credit Agreement are not maintained. As of October 31, 2013, we were in compliance with all covenants. | ' | ' | ' | ' | ' | ' |
Interest expense | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $2,000,000 | ' | ' | ' | ' |
LONGTERM_DEBT_Details_2
LONG-TERM DEBT (Details 2) (Warrant, Z Investment Holdings, LLC, USD $) | 1 Months Ended |
31-May-10 | |
item | |
Warrant | Z Investment Holdings, LLC | ' |
Warrant and Registration Rights Agreement | ' |
Number of warrants held by Z Investment Holdings, LLC (in shares) | 11,100,000 |
Number of common shares that can be purchased by converting each warrant | 1 |
Exercise price of warrants (in dollars per share) | $2 |
Warrants as a percentage of common stock on a fully diluted basis | 25.00% |
Number of directors designated by the warrant holders under first scenario | 2 |
Number of directors designated by the warrant holders under second scenario | 3 |
LONGTERM_DEBT_Details_3
LONG-TERM DEBT (Details 3) (USD $) | Oct. 31, 2013 | Jul. 31, 2013 | Oct. 31, 2012 | Oct. 31, 2013 | Oct. 31, 2012 |
In Thousands, unless otherwise specified | Capital lease obligations | Capital lease obligations | |||
Vehicles | Vehicles | ||||
Long-term debt | ' | ' | ' | ' | ' |
Useful life of vehicle | ' | ' | ' | '4 years | ' |
Capital leases | $105,089 | $105,278 | $117,086 | $2,500 | $3,400 |
OTHER_GAINS_Details
OTHER GAINS (Details) (USD $) | 3 Months Ended |
In Millions, unless otherwise specified | Oct. 31, 2012 |
OTHER GAINS | ' |
De Beers settlement | $1.90 |
Lease termination charges related to certain store closures in Fine Jewelry | $0.10 |
LOSS_PER_COMMON_SHARE_Details
LOSS PER COMMON SHARE (Details) (USD $) | 3 Months Ended | |
In Thousands, except Share data in Millions, unless otherwise specified | Oct. 31, 2013 | Oct. 31, 2012 |
LOSS PER COMMON SHARE | ' | ' |
Net loss | $27,306 | $28,265 |
Warrants | ' | ' |
LOSS PER COMMON SHARE | ' | ' |
Antidilutive securities (in shares) | 11.1 | 11.1 |
Stock options and restricted share awards | ' | ' |
LOSS PER COMMON SHARE | ' | ' |
Antidilutive securities (in shares) | 4.3 | 5 |
ACCUMULATED_OTHER_COMPREHENSIV2
ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Oct. 31, 2013 | Oct. 31, 2012 |
Changes in the composition of accumulated other comprehensive income | ' | ' |
Balance at the beginning of the period | $47,015 | $53,369 |
Foreign currency translation adjustment | -3,233 | 514 |
Unrealized loss on interest rate swaps | -2,516 | ' |
Unrealized gain (loss) on securities, net | 74 | -55 |
Balance at the end of the period | $41,340 | $53,828 |
INCOME_TAXES_Details
INCOME TAXES (Details) (USD $) | 3 Months Ended | |
In Millions, unless otherwise specified | Oct. 31, 2013 | Oct. 31, 2012 |
INCOME TAXES | ' | ' |
Most recent period for which cumulative losses incurred is to be considered | '3 years | ' |
Valuation allowances related to deferred tax assets | $93.20 | $111 |
SEGMENTS_Details
SEGMENTS (Details) (USD $) | 3 Months Ended | |
Oct. 31, 2013 | Oct. 31, 2012 | |
item | ||
SEGMENTS | ' | ' |
Number of business segments | 3 | ' |
SEGMENTS | ' | ' |
Total revenues | $362,615,000 | $357,468,000 |
Total depreciation and amortization | 7,661,000 | 8,646,000 |
Total operating loss | -22,032,000 | -23,003,000 |
De Beers settlement | ' | 1,900,000 |
Unallocated | ' | ' |
SEGMENTS | ' | ' |
Total depreciation and amortization | 2,025,000 | 2,386,000 |
Total operating loss | -8,668,000 | -5,364,000 |
Internal carrying costs offset | 15,800,000 | 15,100,000 |
De Beers settlement | ' | 1,900,000 |
Fine Jewelry | ' | ' |
SEGMENTS | ' | ' |
Total revenues | 313,699,000 | 306,960,000 |
Total depreciation and amortization | 5,059,000 | 5,521,000 |
Total operating loss | -12,001,000 | -16,702,000 |
Revenue related to foreign operations | 62,900,000 | 63,000,000 |
Kiosk | ' | ' |
SEGMENTS | ' | ' |
Total revenues | 46,199,000 | 47,818,000 |
Total depreciation and amortization | 577,000 | 739,000 |
Total operating loss | -2,555,000 | -1,749,000 |
All Other | ' | ' |
SEGMENTS | ' | ' |
Total revenues | 2,717,000 | 2,690,000 |
Total operating loss | $1,192,000 | $812,000 |
CONTINGENCIES_Details
CONTINGENCIES (Details) (Purported class-action lawsuits) | 3 Months Ended |
Oct. 31, 2013 | |
item | |
Purported class-action lawsuits | ' |
CONTINGENCIES | ' |
Number of lawsuits filed | 3 |
DEFERRED_REVENUE_Details
DEFERRED REVENUE (Details) (USD $) | 3 Months Ended | |
Oct. 31, 2013 | Oct. 31, 2012 | |
Change in deferred revenue associated with the sale of warranties | ' | ' |
Deferred revenue, beginning of period | $191,245,000 | $208,516,000 |
Warranties sold | 25,934,000 | 24,980,000 |
Revenue recognized | -33,955,000 | -34,257,000 |
Deferred revenue, end of period | 183,224,000 | 199,239,000 |
Translation adjustment for fluctuation in Canadian currency rate (amounts included in warranties sold) | 500,000 | ' |
Gross margin | $27,400,000 | $28,100,000 |
Optional theft protection | Fine Jewelry | ' | ' |
DEFERRED REVENUE | ' | ' |
Contract period of arrangement | '2 years | ' |
Revenue recognition period | '2 years | ' |
Lifetime warranty | ' | ' |
DEFERRED REVENUE | ' | ' |
Contract period of arrangement | '8 years | ' |
Watch warranty | Fine Jewelry | ' | ' |
DEFERRED REVENUE | ' | ' |
Contract period of arrangement | '2 years | ' |
Breakage warranty | Fine Jewelry | ' | ' |
DEFERRED REVENUE | ' | ' |
Contract period of arrangement | '1 year | ' |
Breakage warranty | Kiosk | ' | ' |
DEFERRED REVENUE | ' | ' |
Contract period of arrangement | '1 year | ' |