SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Dated November 15, 2007
of
ZALE CORPORATION
A Delaware Corporation
IRS Employer Identification No. 75-0675400
SEC File Number 001-04129
901 West Walnut Hill Lane
Irving, Texas 75038
(972) 580-4000
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Securities Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Securities Act (17 CFR 240.13e-2(c))
Item 2.01 Completion of Acquisition or Disposition of Asset.
On November 9, 2007, Zale Corporation (the “Company”) completed the sale of its wholly owned business unit, Bailey Banks & Biddle, to Finlay Fine Jewelry Corporation (“Finlay”) for a purchase price of $200 million, subject to post-closing adjustments in respect of (i) inventory and (ii) certain liabilities and prepaid amounts. In connection with the sale, Finlay and the Company entered into a Transition Services Agreement at the closing of the sale pursuant to which the Company will provide certain services for a transition period in exchange for a fee. As a result of the sale, the Company expects to recognize a gain in the second quarter of approximately $8.5 million, net of tax.
Item 9.01 Financial Statements and Exhibits.
(b) Pro forma financial information.
The following unaudited pro forma financial statements give effect to the sale of certain assets and liabilities of the Bailey Banks & Biddle brand, a wholly owned business unit of the Company.
The unaudited pro forma balance sheet as of July 31, 2007 gives effect to the sale as if it had occurred on July 31, 2007. The unaudited pro forma statement of operations for the fiscal year ended July 31, 2007, give effect to the sale as if it had occurred as of the beginning of the period. These unaudited pro forma consolidated financial statements and related notes do not give any utilization of cash proceeds from the sale.
These unaudited pro forma consolidated financial statements should be read together with the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2007. This pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would actually have been had these transactions actually occurred on the dates presented or to project the Company’s results of operations or financial position for any future period.
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ZALE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2007
(In thousands, except per share amounts)
| | Historical | | Pro forma
adjustments | | Notes | | Pro forma | |
| | | | | | | | | |
Revenues | | $ | 2,437,075 | | $ | (284,289 | ) | (1) | | $ | 2,152,786 | |
| | | | | | | | | |
Costs and expenses: | | | | | | | | | |
Cost of sales | | 1,187,601 | | (162,322 | ) | (1) | | 1,025,279 | |
Selling, general and administrative | | 1,070,478 | | (102,429 | ) | (1) | | 968,049 | |
Cost of insurance operations | | 6,798 | | — | | | | 6,798 | |
Depreciation and amortization | | 61,887 | | (5,291 | ) | (1) | | 56,596 | |
Derivative loss | | 7,184 | | — | | | | 7,184 | |
Operating earnings | | 103,127 | | (14,247 | ) | | | 88,880 | |
Interest expense | | 18,969 | | — | | | | 18,969 | |
Earnings before income taxes | | 84,158 | | (14,247 | ) | | | 69,911 | |
Income taxes | | 24,906 | | (5,556 | ) | (1) | | 19,350 | |
| | | | | | | | | |
Earnings from continuing operations | | 59,252 | | (8,691 | ) | | | 50,561 | |
| | | | | | | | | |
Gain on sale of discontinued operations, net of taxes | | — | | 8,540 | | (2) | | 8,540 | |
Net earnings | | $ | 59,252 | | $ | (151 | ) | | | $ | 59,101 | |
| | | | | | | | | |
Basic net earnings per share: | | | | | | | | | |
Earnings from continuing operations | | $ | 1.22 | | $ | (0.18 | ) | | | $ | 1.04 | |
| | | | | | | | | |
Gain on sale of discontinued operations | | $ | — | | $ | 0.18 | | | | $ | 0.18 | |
| | | | | | | | | |
Net earnings per share | | $ | 1.22 | | $ | (0.00 | ) | | | $ | 1.22 | |
| | | | | | | | | |
Diluted net earnings per share: | | | | | | | | | |
Earnings from continuing operations | | $ | 1.21 | | $ | (0.18 | ) | | | $ | 1.03 | |
| | | | | | | | | |
Gain on sale of discontinued operations | | $ | — | | $ | 0.18 | | | | $ | 0.18 | |
| | | | | | | | | |
Net earnings per share | | $ | 1.21 | | $ | 0.00 | | | | $ | 1.21 | |
| | | | | | | | | |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic | | 48,694 | | 48,694 | | | | 48,694 | |
| | | | | | | | | |
Diluted | | 48,995 | | 48,995 | | | | 48,995 | |
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ZALE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT JULY 31, 2007
(In thousands)
| | Historical | | Pro forma
adjustments | | Notes | | Pro forma | |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | | $ | 37,643 | | $ | 193,028 | | (3) | | $ | 230,671 | |
Merchandise inventories | | 1,021,164 | | (154,769 | ) | (4) | | 866,395 | |
Other current assets | | 113,511 | | (559 | ) | (4) | | 112,952 | |
| | | | | | | | | |
Total current assets | | 1,172,318 | | 37,700 | | | | 1,210,018 | |
| | | | | | | | | |
Property and equipment | | 304,396 | | (27,556 | ) | (4) | | 276,840 | |
Goodwill | | 100,740 | | — | | | | 100,740 | |
Other assets | | 35,187 | | — | | | | 35,187 | |
Deferred tax asset | | 1,305 | | — | | | | 1,305 | |
| | | | | | | | | |
Total assets | | $ | 1,613,946 | | $ | 10,144 | | | | $ | 1,624,090 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ INVESTMENT | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 300,929 | | $ | (5,272 | ) | (4) | | $ | 295,657 | |
Deferred tax liability | | 73,529 | | — | | | | 73,529 | |
| | | | | | | | | |
Total current liabilities | | 374,458 | | (5,272 | ) | | | 369,186 | |
| | | | | | | | | |
Long-term debt | | 227,306 | | — | | | | 227,306 | |
Other liabilities | | 109,609 | | (3,377 | ) | (4) | | 106,232 | |
| | | | | | | | | |
Stockholders’ investment: | | | | | | | | | |
Common stock | | 487 | | — | | | | 487 | |
Additional paid-in capital | | 138,036 | | — | | | | 138,036 | |
Accumulated other comprehensive income | | 45,939 | | — | | | | 45,939 | |
Accumulated earnings | | 868,111 | | 18,793 | | (5) | | 886,904 | |
| | 1,052,573 | | 18,793 | | | | 1,071,366 | |
| | | | | | | | | |
Treasury stock | | (150,000 | ) | — | | | | (150,000 | ) |
Total stockholders’ investment | | 902,573 | | 18,793 | | | | 921,366 | |
| | | | | | | | | |
Total liabilities and stockholders’ investment | | $ | 1,613,946 | | $ | 10,144 | | | | $ | 1,624,090 | |
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ZALE CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 31, 2007
AND PRO FORMA CONSOLIDATED BALANCE SHEET AT JULY 31, 2007
(Unaudited)
Pro forma Consolidated Statement of Operations for the year ended July 31, 2007 (unaudited)
(1) The pro forma statement of operations for the year ended July 31, 2007, reflects the sale of Bailey Banks & Biddle assets as though the sale had occurred at the beginning of the period. Accordingly, the revenues and costs associated with those assets have been adjusted for the entire year.
(2) The gain on sale of discontinued operations is estimated at $8.5 million which is net of estimated transaction costs and associated tax expense of $5.5 million.
Pro forma Consolidated Balance Sheet at July 31, 2007 (unaudited)
(3) The Company sold substantially all the assets and certain liabilities related to Bailey Banks & Biddle and received cash proceeds of approximately $193 million, net of transaction costs and before taxes and certain working capital adjustments. The Company’s balance sheet as of July 31, 2007, has been adjusted on a pro forma basis to show the receipt of these funds.
(4) The pro forma balance sheet has been adjusted to remove Bailey Banks & Biddle assets sold and certain liabilities that were assumed by Finlay Fine Jewelry Corporation.
(5) Accumulated earnings have been adjusted to reflect the cumulative effect on accumulated earnings as a result of the above adjustments. Included in this amount is a gain that would be recorded upon consummation of the sale.
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SIGNATURES
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 hereunto duly authorized.
| | ZALE CORPORATION |
| | |
| | |
Date: November 15, 2007 | By: | /s/ Cynthia T. Gordon | |
| | |
| | Cynthia T. Gordon |
| | Senior Vice President, |
| | Controller |
| | (Principal Accounting Officer |
| | of the Registrant) |
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