Zale CFO Placed on Administrative Leave

Zale Corporation announced on Friday that Mark Lenz, group senior vice president and chief financial officer, has been placed on administrative leave until further notice.

The move follows recent discussions with the company's outside auditors concerning Lenz's failure to timely disclose in conversations with the auditors that vendor payments scheduled to be made during the last two weeks of the Company's fiscal year ended July 2005 were delayed until the first week of August 2005.

The delay of the scheduled payments in July did not affect reported revenues or earnings, but did increase net cash flows from operating activities and free operating cash flow. The company believes that both cash and accounts payable were properly reflected on the balance sheet. The company is determining the exact amount of the deferred payments, but currently believes it did not exceed $8.2 million.

For the fiscal year ended July 31, 2005, the Company reported net cash flows from operating activities of $168 million and disclosed free operating cash flow, a non-GAAP financial measurement, of $89 million. The Company has discussed this matter with the Securities and Exchange Commission and is reviewing the matter internally and with its auditors.

"The Company's Board of Directors concluded that based on this information a change in chief financial officers was appropriate," commented Betsy Burton, acting CEO. "The company continues to believe that its accounting was appropriate and complied with generally accepted accounting principles."

Zale also announced that George Mihalko has been appointed as acting chief administrative officer and CFO effective immediately.

"We are pleased to have someone of George's caliber join our Company," said Ms. Burton. "He brings to Zale a proven track record and expertise in the area of finance and accounting and will add experience and leadership to the executive management team."

Zale Corporation is North America's largest specialty retailer of fine jewelry operating approximately 2,345 retail locations throughout the United States, Canada and Puerto Rico.