Accounting & Tax

Zale Puts CFO on Ice

Payments to vendors of the jewelry retailer were pushed back from one fiscal year to the next.
Stephen TaubMay 8, 2006

Jewelry retailer Zale Corp. announced that until further notice, it has put senior vice president and chief financial officer Mark Lenz on administrative leave due to his failure to timely disclose a delay in payments to vendors.

The payments, scheduled for the last two weeks of the July 2005 fiscal year, were delayed until the first week of August. According to Zale, the delay did not affect reported revenues or earnings, but did increase net cash flows from operating activities and free operating cash flow.

Zale stressed that both cash and accounts payable were properly reflected on the balance sheet. Even so, the company added that it is still determining the exact amount of the deferred payments, which it currently believes did not exceed $8.2 million.

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“The company continues to believe that its accounting was appropriate and complied with generally accepted accounting principles,” said Betsy Burton, acting chief executive officer, in a statement. Zale added that it has discussed the matter with the Securities and Exchange Commission and is reviewing the matter internally and with its auditors, KPMG.

Zale also announced that George Mihalko has been appointed acting chief administrative officer, acting chief financial officer, and a member of the board of directors, effective immediately. He will report directly to Burton. Mihalko served as vice chairman, chief administrative officer, and chief financial officer of The Sports Authority until August 2003.

Last month, Zale disclosed that the Securities and Exchange Commission was investigating the timing of certain vendor payments, as well as other matters including accounting for extended service agreements, leases, and accrued payroll; executive compensation and severance; earnings guidance; and stock trading.