Zale Reports Errors in Financial Reports, May File Annual Report on Oct. 29

Jewelry retailer Zale Corporation said its 2008 and 2007 financial statements contain errors and will need to be restated. Tax payments are among the errors as is how advertising spending has been recorded.

Zale said its board audit committee, in consultation with the company’s independent accounting firm, Ernst & Young, concluded that the company’s previously issued financial statements for fiscal years 2008 and 2007 contain the errors specified below and should no longer be relied upon.

Therefore, the company plans to restate its financial statements for fiscal 2008 and interim periods in fiscal 2008 and 2009, and will present the restated financial statements in its annual report for the fiscal year ended July 31, 2009. 

After Zale twice delayed filing its annual results, the company currently expects to file it on or before October 29, “although this date may change if unforeseen circumstances arise.“

The errors Zale found pertain to the following issues:

·        A significant portion of prepaid advertising costs should have been recorded as expense. Prepaid advertising reflected in the balance sheets as of July 31, 2008 and 2007 totaled approximately $23 million and $18 million, respectively.

·        Certain adjustments aggregating approximately $9 million on a pre-tax basis, including (1) a charge related to an intercompany accounts receivable associated with Zale’s wholly owned insurance subsidiaries, (2) a charge related to certain depository bank account reconciliations and (3) a benefit related to personal property tax reserves. In addition, a charge totaling approximately $4 million will be recorded in fiscal 2008 related to federal income taxes resulting from the expiration of net operating loss carry forwards.

The company added that the adjustments for the annual and quarterly periods have not been finalized.