10-K

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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

Annual Report for the fiscal year ended July 31, 2013

Zale Corporation

A Delaware Corporation
IRS Employer Identification No. 75-0675400
SEC File Number 1-04129

901 W. Walnut Hill Lane
Irving, Texas 75038-1003
(972) 580-4000

        Zale Corporation's common stock, par value $0.01 per share, is registered pursuant to Section 12 (b) of the Securities Exchange Act of 1934 (the "Act") and is listed on the New York Stock Exchange. Zale Corporation does not have any securities registered under Section 12(g) of the Act. Zale Corporation is not a well-known seasoned issuer. Zale Corporation is required to file reports pursuant to Section 13 of the Act. Zale Corporation (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

        Zale Corporation has submitted electronically and posted on the Company's website all Interactive Data Files required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Company was required to submit and post such files).

        Disclosure of the delinquent filers pursuant to Item 405 of Regulation S-K will not be contained in our definitive Proxy Statement, portions of which are incorporated by reference in Part III of this Form 10-K.

        Zale Corporation is an accelerated filer.

        Zale Corporation is not a shell company.

        The aggregate market value of Zale Corporation's common stock (based upon the closing sales price quoted on the New York Stock Exchange) held by non-affiliates as of January 31, 2013 was $157,946,032. For this purpose, directors and officers have been assumed to be affiliates. As of September 23, 2013, 32,764,729 shares of Zale Corporation's common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.

        Portions of Zale Corporation's definitive Proxy Statement for the 2013 Annual Meeting of Stockholders to be held on December 5, 2013 are incorporated by reference into Part III.

ZALE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I.
Item 1.	Business	1
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	16
Item 3.	Legal Proceedings and Other Matters	17
Item 4.	Mine Safety Disclosures	17
Item 4A.	Executive Officers of the Registrant	18
PART II.
Item 5.	Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	23
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	40
Item 9A.	Controls and Procedures	40
Item 9B.	Other Information	41
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	42
Item 11.	Executive Compensation	42
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
Item 13.	Certain Relationships and Related Transactions, and Director Independence	42
Item 14.	Principal Accountant Fees and Services	42
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	43

PART I

ITEM 1.    BUSINESS

General

        References to the "Company," "we," "us," and "our" in this Form 10-K 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 July 31, 2013, we operated 1,064 specialty retail jewelry stores and 630 kiosks located mainly in shopping malls throughout the United States, Canada and Puerto Rico.

        We were incorporated in Delaware in 1993. Our principal executive offices are located at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003. Our telephone number at that address is (972) 580-4000, and our internet address is www.zalecorp.com.

        During the fiscal year ended July 31, 2013, we generated $1.9 billion of revenues. We compete in the approximately $79 billion U.S. and Canadian retail jewelry industry by leveraging our established brand names, economies of scale and geographic and demographic diversity. We have significant brand name recognition as a result of each of our brands' long-standing presence in the industry and our national and regional marketing campaigns. We believe that brand name recognition is an important advantage in jewelry retailing and consumers must trust a retailer's reliability, credibility and commitment to customer service. In addition, exclusive merchandise is becoming an increasingly important part of the retail jewelry business and presents a significant opportunity to differentiate our merchandise from the competition.

Business Segments

        We report our operations under three business segments: Fine Jewelry, Kiosk Jewelry and All Other. An overview of each business segment follows below. During fiscal year 2013, Fine Jewelry generated $1.6 billion, or 86.7 percent of our revenues and Kiosk Jewelry generated $239.7 million, or 12.7 percent of our revenues.

Fine Jewelry

        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 a value-oriented jeweler in the U.S. offering a broad range of bridal, diamond solitaire and fashion jewelry. Zales Outlet® operates in outlet malls and neighborhood power centers and capitalizes on Zales Jewelers'® national marketing and brand recognition. Gordon's Jewelers®, our regional brand in the U.S., provides moderately priced jewelry to a wide range of guests. 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. We have extended our reach of certain brands through the use of our webstores, mobile devices and social media to provide our guests access to our brands wherever and whenever they choose. In addition, we offer our guests the option to purchase warranty coverage on substantially all of our merchandise in Fine Jewelry. We also offer repair services to guests who do not purchase warranty coverage.

Zales Jewelers and Zales Outlet

        Zales Jewelers ("Zales"), our U.S. based flagship, is a leading brand name in jewelry retailing in the U.S., operating 614 stores in 50 states and Puerto Rico with an average store size of 1,682 square feet. Zales is positioned as "The Diamond Store" given its emphasis on diamond jewelry, especially in the bridal and fashion segments. The Zales brand complements its merchandise assortments with promotional strategies to increase sales during traditional gift-giving periods and throughout the year. We believe that

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the prominence of diamond jewelry in our product selection and Zales' reputation for customer service for close to 90 years fosters an image of product expertise, quality and trust among consumers. Zales accounted for 52 percent of total revenues in fiscal year 2013, with average sales per location of $1.6 million. Zales serves internet guests through the ecommerce site www.zales.com, which accounted for approximately four percent of our total revenues in fiscal year 2013. Internet sales totaled approximately $84 million in fiscal year 2013 compared to approximately $77 million in fiscal year 2012.

        We operate 127 Zales Outlet ("Outlet") stores in 35 states and Puerto Rico, with an average store size of 2,361 square feet. The outlet concept has evolved into three differentiated formats: power strip centers, traditional outlet malls and destination centers. Outlet was established as an extension of the Zales brand and capitalizes on Zales' national marketing and brand recognition. Our stores feature items in every major jewelry category including exclusive bridal designs, branded watches, gemstones, gold merchandise, diamond fashion and solitaire products. Outlet accounted for 10 percent of total revenues in fiscal year 2013, with average sales per location of $1.5 million. Outlet also serves internet guests through the ecommerce sites www.zalesoutlet.com, which accounted for less than one percent of our total revenues in fiscal year 2013. Internet sales totaled approximately $2 million in fiscal years 2013 and 2012.

        Revenues from our Zales branded stores, which includes Zales and Zales Outlet, accounted for 62 percent of total revenues in fiscal year 2013. Internet sales for Zales branded stores totaled approximately $86 million and $79 million in fiscal years 2013 and 2012, respectively.

Peoples Jewellers

        Peoples Jewellers ("Peoples") is a leading brand name in jewelry retailing in Canada, operating 146 stores in nine provinces with an average store size of 1,630 square feet. Peoples is one of the most recognized brand names in Canada and enjoys the largest market share of any specialty jewelry retailer. Peoples was founded in 1919 and offers jewelry at affordable prices, attracting a wide variety of Canadian guests. Using the trademark "Peoples the Diamond Store", Peoples emphasizes its diamond business while also offering a wide selection of gold jewelry, gemstone jewelry and watches. The Peoples brand has built recognition through a marketing campaign that primarily includes television and print media. Peoples accounted for 14 percent of total revenues in fiscal year 2013, with average sales per location of $1.7 million. Peoples serves internet guests through the ecommerce site, www.peoplesjewellers.com. Internet sales totaled approximately $6 million in fiscal year 2013 compared to approximately $4 million in fiscal year 2012.

Gordon's Jewelers

        Gordon's Jewelers ("Gordon's"), our regional brand in the U.S., was founded in 1905 and operates 122 stores in 24 states and Puerto Rico with an average store size of 1,546 square feet. Gordon's features items in every major jewelry category including exclusive bridal designs, branded watches, gemstones, gold merchandise, and diamond fashion and solitaire products. Gordon's accounted for eight percent of total revenues in fiscal year 2013, with average sales per location of $1.1 million. Gordon's serves internet guests through the ecommerce site www.gordonsjewelers.com. Internet sales totaled approximately $5 million in fiscal years 2013 and 2012.

Mappins Jewellers

        Mappins Jewellers ("Mappins"), our regional brand in Canada, was founded in 1935 and operates 55 stores in six provinces with an average store size of 1,560 square feet. Mappins differentiates itself by offering exclusive merchandise primarily in its bridal assortment and branded jewelry lines. Mappins accounted for three percent of total revenues in fiscal year 2013, with average sales per location of $1.1 million.

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Kiosk Jewelry

        Kiosk Jewelry operates under the brand names Piercing Pagoda®, Plumb Gold™, and Silver and Gold Connection® (collectively, "Piercing Pagoda") through mall-based kiosks and is focused on the opening price point guest. At July 31, 2013, Piercing Pagoda operated 630 locations in 41 states and Puerto Rico with an average kiosk size of 190 square feet. Kiosks are generally located in high traffic areas that are easily accessible and visible within regional shopping malls. At the entry-level price point, Piercing Pagoda services fashion conscious guests of all ages. Piercing Pagoda offers an extensive collection of bracelets, earrings, charms, rings, non-precious metal products and gold chains, as well as a selection of silver and diamond jewelry, all in basic styles at moderate prices. In addition, trained associates perform ear-piercing services on site. Piercing Pagoda accounted for 13 percent of total revenues in fiscal year 2013, with average sales per location of $0.4 million. Piercing Pagoda serves internet guests through the ecommerce site www.pagoda.com. Internet sales totaled approximately $2 million in both fiscal year 2013 and 2012.

All Other

        We provide insurance and reinsurance services for various types of insurance coverage, which are marketed to our private label credit card guests, through Zale Indemnity Company, Zale Life Insurance Company and Jewel Re-Insurance Ltd. These three companies are the insurers (either through direct written or reinsurance contracts) of our guests' credit insurance coverage. In addition to providing merchandise replacement coverage for certain perils, credit insurance coverage provides protection to the creditor and cardholder for losses associated with the disability, involuntary unemployment, leave of absence or death of the cardholder. Zale Life Insurance Company also provides group life insurance coverage for our eligible employees. Zale Indemnity Company, in addition to writing direct credit insurance contracts, has certain discontinued lines of insurance that it continues to service. Credit insurance operations are dependent on our retail sales through our private label credit cards. In fiscal year 2013, 38 percent of our private label credit card purchasers purchased some form of credit insurance. Under the current private label agreement with Citibank (South Dakota), N.A. ("Citibank"), our insurance affiliates provide insurance to holders of our U.S. private label credit card and receive payments for such insurance products. Under the current private label agreement with TD Financing Services, Inc. ("TDFS"), TDFS provides credit insurance to holders of our Canadian private label credit card and receives 40 percent of the net profits and the remaining 60 percent is paid to us. In fiscal year 2013, All Other accounted for approximately one percent of our total revenues.

Ecommerce Business

        The webstores for Zales, Zales Outlet, Gordon's, Peoples and Piercing Pagoda provide our guests with a source of information about the merchandise available, as well as the ability to buy online. The webstores allow guests to order merchandise online that may be delivered directly to the guest or picked up at a store. For the year ended July 31, 2013, approximately 28 percent of our guests chose to pick up the merchandise from a store. The websites make an important and growing contribution to the guest experience and are an integral part of our marketing programs. In fiscal year 2013, total internet sales were $100.0 million, an increase of 11.5 percent compared to revenues of $89.7 million in fiscal year 2012. Our guests also utilize our webstores to identify merchandise online that they subsequently purchase at a store.

        We continue to expand our omnichannel business through mobile devices and social media to enable our guests to buy and receive products where, when and how they want and enhance their experience as they engage with us across all of our virtual and brick and mortar channels. Our omnichannel strategy allows guests to experience our brands by providing a seamless and high-quality approach to their shopping experience. We aim to deliver the best guest experience possible through an integration of all available shopping channels including stores, websites and through mobile devices. Our followers on Facebook and Twitter and views of our YouTube advertisements continue to increase and social media outlets are driving more traffic to our stores and ecommerce sites. We believe that our web marketing, social media and

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mobile initiatives will be a significant contributor to our future sales growth. We plan to continue to invest in these initiatives by implementing new capabilities to provide guests with an enhanced shopping experience.

        Our supplier relationships allow us to display suppliers' inventories on our websites for sale to customers without holding the items in our inventory until the products are ordered by guests, which are referred to as "virtual inventory". Virtual inventory expands the choice of merchandise available to guests both online and in our stores. Virtual inventory reduces our investment in inventory while increasing the selection available to the guest.

Industry and Competition

        Jewelry retailing is highly fragmented and competitive. We compete with a large number of independent regional and local jewelry retailers, as well as with other national jewelry chains. We also compete with other types of retailers who sell jewelry and gift items such as department stores, discounters, direct mail suppliers, online retailers and television home shopping programs. Certain of our competitors are non-specialty retailers, which are larger and have greater financial resources than we do. The malls where most of our stores are located typically contain competing national chains, independent jewelry stores and/or department stores with jewelry departments. We believe that we generally compete for consumers' discretionary spending dollars and, therefore, compete with retailers who offer merchandise other than jewelry. Therefore, we compete primarily on the basis of our reputation for high quality products, brand recognition, store location, distinctive and value-oriented merchandise, personalized customer service and ability to offer a variety of credit programs to guests wishing to finance their purchases. Our success also is dependent on our ability to both create and react to guest demand for specific merchandise categories.

        The U.S. and Canadian retail jewelry industry accounted for approximately $79 billion of sales in 2012 according to publicly available data, of which approximately $33 billion is specialty jewelry. We have a 5.7 percent market share in the combined U.S. and Canadian specialty jewelry markets. The largest jewelry retailer in the combined U.S. and Canadian markets is believed to be Wal-Mart Stores, Inc. Other significant segments of the fine jewelry industry include national chain department stores (such as J.C. Penney Company, Inc.), mass merchant discount stores (such as Wal-Mart Stores, Inc.), other general merchandise stores, specialty retail jewelers (such as Signet Jewelers Limited) and apparel and accessory stores. The remainder of the retail jewelry industry is comprised primarily of catalog and mail order houses, direct-selling establishments, TV shopping networks (such as QVC, Inc.) and online jewelers.

        We hold no material patents, licenses, franchises or concessions; however, our established trademarks and trade names are essential to maintaining our competitive position in the retail jewelry industry.

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Operations by Brand and Merchandise Mix

        The following table presents revenues, comparable store sales and average sales per location for each of our brands for the periods indicated.

	Year Ended July 31,
Revenues (in thousands)	2013		2012		2011
Zales	$	982,409	$	948,353	$	852,362
Outlet		194,767		188,151		167,960
Peoples		254,550		243,147		227,534
Gordon's		143,278		168,179		174,865
Mappins		62,355		69,854		70,573
Piercing Pagoda		239,722		238,692		239,231
All Other		10,935		10,502		10,038
	$	1,888,016	$	1,866,878	$	1,742,563

Comparable Store Sales(a)
Zales	4.9%	11.0%	8.4%
Outlet	3.3%	9.6%	8.8%
Peoples	5.7%	4.3%	14.0%
Gordon's	(3.6)%	1.7%	3.6%
Mappins	(6.7)%	(1.5)%	11.9%
Piercing Pagoda	1.3%	(1.0)%	3.6%
Total Company	3.3%	6.9%	8.1%
Comparable Store Sales (in constant currency)(a)
Peoples	4.8%	5.9%	7.9%
Mappins	(7.5)%	0.1%	5.9%

Average Sales Per Location (in thousands)(b):
Zales	$	1,571	$	1,470	$	1,286
Outlet		1,521		1,418		1,239
Peoples		1,713		1,623		1,490
Gordon's		1,079		1,032		964
Mappins		1,095		1,171		1,181
Piercing Pagoda		377		361		356

(a)

Comparable store sales include internet sales and repair sales but exclude revenue recognized from warranties and insurance premiums related to credit insurance policies sold to guests who purchase merchandise under our proprietary credit programs. Stores closed for more than 90 days due to unforeseen events (e.g., hurricanes, etc.) are excluded from the calculation of comparable store sales.

(b)

Average sales per location include merchandise sales, internet sales, repair revenue and warranties for locations open a full 12 months during the applicable year.

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        The following table presents the number of locations for each of our brands for the periods indicated.

	Locations by Brand
Year Ended July 31, 2013	Locations Opened During Period		Locations Closed During Period		Locations at End of Period
Zales		—		25		614
Outlet		1		6		127
Peoples		—		1		146
Gordon's		—		25		122
Mappins		—		4		55
Piercing Pagoda		12		36		630
		13		97		1,694
Year Ended July 31, 2012
Zales		9		20		639
Outlet		1		1		132
Peoples		—		1		147
Gordon's		—		21		147
Mappins		—		6		59
Piercing Pagoda		2		14		654
		12		63		1,778
Year Ended July 31, 2011
Zales		1		26		650
Outlet		2		6		132
Peoples		1		—		148
Gordon's		—		24		168
Mappins		—		3		65
Piercing Pagoda		7		13		666
		11		72		1,829

        The following table presents Fine Jewelry's merchandise mix for the periods indicated (excludes repair sales, revenue recognized from warranties and insurance premiums related to credit insurance).

	Year Ended July 31,
	2013			2012			2011
Diamond jewelry		68	%		68	%		68	%
Gold and silver jewelry, including beads		15			15			14
Watches		4			4			5
Other		13			13			13
		100	%		100	%		100	%

Business Segment Data

        Information concerning sales, segment income and total assets attributable to each of our business segments is set forth below in Item 6, "Selected Financial Data," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in the "Notes to Consolidated Financial Statements," all of which are incorporated herein by reference.

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Exclusive, Branded Merchandise

        We believe that offering exclusive, branded merchandise to our guests raises the profile of our brands and helps to drive sales. Such merchandise also has significantly less exposure to competitive discounting. Our exclusive, branded merchandise includes our Vera Wang LOVE collection and our Celebration Diamond Collection™. The Vera Wang LOVE collection is designed by the most recognizable name in the wedding business, Vera Wang, and includes diamond engagement rings, wedding bands and diamond solitaires. As a result of the success of this merchandise, we intend to expand the collection during the fiscal year 2014 Holiday season. In fiscal year 2013, we reintroduced our Celebration Diamond Collection™, which consists of diamond jewelry that has been expertly cut to maximize its brilliance and beauty. The Celebration Diamond Collection™ offers a good, better and best selection of engagement rings and diamond solitaires with the Celebration 102™, Celebration Grand™ and Celebration Fire™ product lines. During fiscal year 2013, revenue associated with our exclusive, branded merchandise increased to 11 percent of Fine Jewelry's revenue, compared to 8 percent in the prior year. We expect to increase our exclusive, branded collections to over 13 percent of Fine Jewelry's revenue in fiscal year 2014.

Guest Experience

        Our stores are designed to differentiate our brands, create an attractive environment, make shopping convenient and enjoyable, and maximize operating efficiencies, all of which enhance the guest experience. Our store layout is designed to optimize merchandise presentation, which provides particular focus on arrangement of showcases, lighting and materials. To support peak selling seasons, merchandise presentations are changed periodically.

        Each of our stores is led by a store manager who is responsible for store-level operations, including overall store sales, store profitability and personnel matters. Administrative functions, including purchasing, distribution and payroll, are delivered from the corporate level to maintain efficiency and lower operating costs. To protect the investment in our fine jewelry, all stores also offer protection plans to our guests that provide extended warranty coverage that may be purchased at the guest's option, and competitive return and exchange policies. We also offer repair services to guests who do not purchase warranty coverage. To facilitate sales, we offer a layaway program, generally requiring a deposit of not less than 10 percent of the purchase price at the inception of the layaway transaction.

        We believe it is important to provide knowledgeable and responsive guest service and we maintain a strong focus on connecting with the guest, both through our marketing and in-store communications and service. Our goal is to form and sustain an effective relationship with the guest from the first sale. We maintain a centralized customer service center to deliver efficient and effective service to our guests.

        We consistently focus on the level and frequency of our employee education and training programs, particularly with store managers and jewelry consultants. We provide selling and merchandise product training for all store personnel. We continue to utilize our Engage training program to ensure our jewelry consultants across all brands provide a consistent guest experience. We offer Diamond Council of America ("DCA") training to our store managers, district managers, regional directors and full-time jewelry consultants to provide a more in-depth understanding of the technical aspects of selling diamonds. At July 31, 2013, 76 percent of our eligible full-time store personnel were DCA certified compared to 62 percent last year.

Purchasing and Inventory

        We purchase the majority of our merchandise in finished form from a network of established suppliers and manufacturers located primarily in the United States, India, Southeast Asia and Italy. We purchase products from 28 countries and operate a manufacturing subsidiary that is our largest supplier of finished products. At the end of fiscal year 2013, approximately 16 percent of our total inventory represented raw materials and finished goods in our distribution centers. All purchasing is done through buying offices at

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our corporate headquarters ("Store Support Center"). Consignment inventory has historically consisted of test programs, merchandise at higher price points or merchandise that otherwise does not warrant the risk of ownership. We had $149.1 million and $118.4 million of consignment inventory on hand at July 31, 2013 and 2012, respectively. During both fiscal years 2013 and 2012, we purchased approximately 22 percent of our finished merchandise from our top five vendors (excluding finished merchandise produced by our manufacturing subsidiary) with no single vendor exceeding ten percent. If our supply with these top vendors were disrupted, particularly at certain critical times during the year, our sales could be adversely affected in the short term until alternative supply arrangements could be established.

        In fiscal year 2013, we began a comprehensive, multi-year program to review all aspects of merchandise sourcing including optimization of make-or-buy alternatives, more efficient diamond sourcing and an assessment of standard vendor payment terms. We expect to begin realizing benefits from this initiative in fiscal year 2014, with acceleration of those benefits in fiscal year 2015.

        We maintain stringent inventory control systems, extensive security systems and loss prevention procedures to minimize inventory losses. We screen employment applicants and provide our store personnel with training in loss prevention. Despite such precautions, we experience theft losses from time to time, and maintain insurance to cover significant external losses.

        As a specialty retail jeweler, we are affected by industry-wide fluctuations in the prices of diamonds, gold, silver and other metals and stones. The supply and prices of diamonds in the principal world markets are significantly influenced by a single entity, Diamond Trading Company ("DTC"), a subsidiary of the De Beers group, which has traditionally controlled the sale of a substantial percentage of the world's supply of diamonds and sells rough diamonds to worldwide diamond cutters at prices determined in its sole discretion. The availability of diamonds to the DTC and our suppliers is to some extent dependent on the political environment in diamond-producing countries and on continuation of prevailing supply of rough diamonds. Any sustained interruption in the supply of diamonds could adversely affect us and the retail jewelry industry as a whole. The inverse is true with respect to any oversupply from diamond-producing countries, which could cause diamond prices to fall.

Customer Credit Programs

        Our customer credit programs facilitate the sale of merchandise to guests who wish to finance their purchases rather than use cash or other payment sources. We offer revolving and interest free credit plans under our private label credit card programs, in conjunction with other alternative finance vehicles that allow our jewelry consultants to provide the guest with a variety of financing options. Approximately 35 percent of our U.S. sales were financed by customer credit in both fiscal years 2013 and 2012. Our Canadian propriety credit card sales represented approximately 18 percent and 19 percent of Canadian sales for fiscal years 2013 and 2012, respectively.

        In September 2010, we entered into a five-year agreement to amend and restate various terms of the March 2001 Merchant Services Agreement with Citibank, to provide financing for our U.S. guests beginning October 1, 2010. Citibank issues private label credit cards branded with an appropriate trademark, and provides financing for our U.S. guests to purchase merchandise in exchange for payment by us of a merchant fee based on a percentage of each credit card sale. The merchant fee varies according to the credit plan that is chosen by the guest (i.e., revolving, interest free). The agreement also enables us to write credit insurance. In July 2013, the Company provided written notice to Citibank of its intent not to renew the agreement upon expiration in October 2015.

        On July 9, 2013, we entered into a Private Label Credit Card Program Agreement (the "ADS Agreement") with an affiliate of Alliance Data Systems Corporation ("ADS") to provide financing to our U.S. guests to purchase merchandise through private label credit cards beginning no later than October 1, 2015. In addition, ADS will provide marketing, analytical and technical services and has the option to

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participate in certain special financing programs prior to the commencement of the agreement. The ADS Agreement will replace our current agreement with Citibank which expires on October 1, 2015.

        In May 2010, we entered into a five-year Private Label Credit Card Program Agreement with TDFS to provide financing for our Canadian guests to purchase merchandise through private label credit cards beginning July 1, 2010. The agreement with TDFS replaced the agreement with Citi Cards Canada Inc., which expired on June 30, 2010.

        We also enter into agreements with certain other lenders to offer alternative financing options to our U.S. guests who have been declined by Citibank. During fiscal year 2013, we expanded our alternate credit program by entering into an agreement with Genesis Financial Solutions, Inc. to provide additional financing options to our U.S. guests.

Employees

        As of July 31, 2013, we had approximately 11,900 employees, of whom approximately 13 percent were Canadian employees and less than one percent of whom were represented by unions. In addition, we typically hire temporary employees during November and December of each year, the Holiday season.

Seasonality

        As a specialty retailer of fine jewelry, our business is seasonal in nature, with our second fiscal quarter, which includes the holiday months of November and December, accounting for a disproportionately greater percentage of annual sales and cash flow than the other three quarters. Other important periods include Valentine's Day and Mother's Day. We expect such seasonality to continue.

Information Technology

        Our technology systems provide information necessary for: (i) store operations; (ii) inventory control; (iii) profitability monitoring; (iv) customer service; (v) expense control programs; and (vi) overall management decision support. Significant data processing systems include point-of-sale reporting, purchase order management, replenishment, warehouse management, merchandise planning and control, payroll, general ledger, sales audit and accounts payable. Bar code ticketing and scanning are used at all point-of-sale terminals to ensure accurate sales and margin data compilation and to provide for inventory control monitoring. Information is made available online to merchandising staff on a timely basis, thereby increasing the merchants' ability to be responsive to changes in guest behavior. In fiscal year 2013, we began an initiative to enhance store productivity through upgrades in information technology in our Fine Jewelry stores. The upgrades include new point-of-sale hardware and software and improved connectivity in our stores. We believe this technology will improve the guest experience and the efficiency of our communication and training to our stores. Investment in the digital environment such as websites and social media further adds to the guest's shopping choices.

        Our information technology systems and processes allow management to monitor, review and control operational performance on a daily, monthly, quarterly and annual basis for each store and each transaction. Senior management can review and analyze activity by store, amount of sale, terms of sale or employees who sell the merchandise.

        We have an operations services agreement with a third party for the management of our client server systems, local area network operations, wide area network management and technical support. The agreement commenced in June 2010 and requires fixed payments totaling $34.5 million over a 74-month period plus a variable amount based on usage. We believe that by outsourcing our data center operations, we are better able to focus our resources on developing and executing our strategic initiatives.

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Regulation

        Our operations are affected by numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider. In addition to our private label credit cards, credit to our guests is provided primarily through bank cards such as Visa®, MasterCard®, and Discover®. Regulations implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 imposed new restrictions on credit card pricing, finance charges and fees, customer billing practices and payment. Any change in the regulation of credit which would materially limit the availability of credit to our customer base could adversely affect our results of operations or financial condition.

        We are subject to the jurisdiction of various state and other taxing authorities. From time to time, these taxing authorities conduct reviews or audits of the Company.

        The sale of insurance products is also regulated. Our wholly-owned insurance companies are required to file reports with various insurance commissions, and are also subject to regulations relating to capital adequacy, the payment of dividends and the operation of their businesses generally. State laws also impose registration and disclosure obligations with respect to the credit and other insurance products that we sell to our guests. In addition, the providers of our private label credit programs are subject to disclosure and other requirements under state and federal law and are subject to review by the Federal Trade Commission and the state and federal banking regulators. The sale of certain warranty products are also regulated by state laws that impose registration and disclosure obligations with respect to warranty products that we sell to our guests.

        Merchandise in the retail jewelry industry is frequently sold at a discount off the "regular" or "original" price. We are subject to federal and state regulations requiring retailers offering merchandise at promotional prices to offer the merchandise at regular or original prices for stated periods of time. Additionally, we are subject to certain truth-in-advertising and various other laws, including consumer protection regulations that regulate retailers generally and/or the promotion and sale of jewelry in particular.

        Diamonds extracted from certain regions in Africa, including Zimbabwe, and believed to be used to fund terrorist activities, are considered conflict diamonds. We support the Kimberley Process, an international initiative intended to ensure diamonds are not illegally traded to fund conflict. As part of this initiative, we require our diamond suppliers to acknowledge compliance with the Kimberley Process, and invoices received for diamonds purchased by us must include a certification from the vendor that the diamonds and diamond-containing jewelry are conflict free. Through this and other efforts, we believe that the suppliers from whom we purchase our diamonds exclude conflict diamonds from their inventories.

        In August 2012, the Securities and Exchange Commission ("SEC") issued rules that require companies that manufacture products using certain minerals, including gold, to determine whether those minerals originated in the Democratic Republic of Congo ("DRC") or adjoining countries. If the minerals originate in the DRC, or if companies are not able to establish where they originated, extensive disclosure regarding the sources of those minerals, and in some instances an independent audit of the supply chain, is required. The costs of complying with the new rules are not expected to be material. The Company will be required to file its first disclosure report by May 31, 2014 for the calendar year ending December 31, 2013.

Available Information

        We provide links to our filings with the SEC and to the SEC filings of our directors and executive officers under Section 16 (Forms 3, 4 and 5) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), free of charge, on our website at www.zalecorp.com, under the heading "Investor Relations" in the "SEC Filings" section. These links are automatically updated, so the filings are available

10

immediately after they are made publicly available by the SEC. These filings also are available through the SEC's EDGAR system at www.sec.gov.

        Our certificate of incorporation and bylaws as well as the charters for the compensation, audit, nominating and corporate governance committees of our Board of Directors and the corporate governance guidelines are available on our website at www.zalecorp.com, under the heading "About Zale Corporation" in the "Corporate Governance" section.

        We have a Code of Business Conduct and Ethics (the "Code"). All of our directors, executive officers and employees are subject to the Code. The Code is available on our web site at www.zalecorp.com, under the heading "About Zale Corporation" in the "Corporate Governance" section. Waivers of the Code, if any, for directors and executive officers would be disclosed in a SEC filing on Form 8-K or, to the extent permitted by law, on our website.

ITEM 1A.    RISK FACTORS

        We make forward-looking statements in this Annual Report on Form 10-K and in other reports we file with the SEC. In addition, members of our senior management make forward-looking statements orally in presentations to analysts, investors, the media and others. Forward-looking statements include statements regarding our objectives and expectations with respect to our financial plan (including expectations for earnings, comparable store sales, gross margin, selling, general and administrative expenses, operating margin, interest expense, income tax expense and capital expenditures for fiscal year 2014), merchandising and marketing strategies, acquisitions and dispositions, share repurchases, store openings, renovations, remodeling and expansion, inventory management and performance, liquidity and cash flows, capital structure, capital expenditures, development of our information technology and telecommunications plans and related management information systems, ecommerce initiatives, human resource initiatives and other statements regarding our plans and objectives. In addition, the words "plans to," "anticipate," "estimate," "project," "intend," "expect," "believe," "forecast," "can," "could," "should," "will," "may," or similar expressions may identify forward-looking statements, but some of these statements may use other phrasing. These forward-looking statements are intended to relay our expectations about the future, and speak only as of the date they are made. We disclaim any obligation to update or revise publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances.

        Forward-looking statements are not guarantees of future performance and a variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements.

         If the general economy performs poorly, discretionary spending on goods that are, or are perceived to be, "luxuries" may not grow and may decrease.

        Jewelry purchases are discretionary and may be affected by adverse trends in the general economy (and consumer perceptions of those trends). In addition, a number of other factors affecting consumers such as employment, wages and salaries, business conditions, energy costs, credit availability and taxation policies, for the economy as a whole and in regional and local markets where we operate, can impact sales and earnings.

         A serious economic downturn could have a material and adverse effect on our business and financial condition.

        Declining confidence in either the U.S. or Canadian economies where we are active could adversely affect consumers' ability and willingness to purchase our products in those regions. Should either of these economies suffer a serious economic downturn, it could have a material and adverse effect on our business and financial condition.

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         The concentration of a substantial portion of our sales in three relatively brief selling periods means that our performance is more susceptible to disruptions.

        A substantial portion of our sales are derived from three selling periods—Holiday (Christmas), Valentine's Day and Mother's Day. Because of the briefness of these three selling periods, the opportunity for sales to recover in the event of a disruption or other difficulty is limited, and the impact of disruptions and difficulties can be significant. For instance, adverse weather (such as a blizzard or hurricane), a significant interruption in the receipt of products (whether because of vendor or other product problems), or a sharp decline in mall traffic occurring during one of these selling periods could materially impact sales for the affected period and, because of the importance of each of these selling periods, commensurately impact overall sales and earnings.

         Any disruption in the supply of finished goods from our largest merchandise vendors could adversely impact our sales.

        We purchase substantial amounts of finished goods from our five largest merchandise vendors. If our supply with these top vendors was disrupted, particularly at certain critical times of the year, our sales could be adversely affected in the short-term until alternative supply arrangements could be established.

         Most of our sales are of products that include diamonds, precious metals and other commodities. A substantial portion of our purchases and sales occur outside the United States. Fluctuations in the availability and pricing of commodities or exchange rates could impact our ability to obtain, produce and sell products at favorable prices.

        The supply and price of diamonds in the principal world market are significantly influenced by the DTC, which has traditionally controlled the marketing of a substantial majority of the world's supply of diamonds and sells rough diamonds to worldwide diamond cutters at prices determined in its sole discretion. The DTC's share of the diamond supply chain has decreased over recent years, which may result in more volatility in rough diamond prices. The availability of diamonds also is somewhat dependent on the political conditions in diamond-producing countries and on the continuing supply of raw diamonds. Any sustained interruption in this supply could have an adverse affect on our business.

        We also are affected by fluctuations in the price of diamonds, gold and other commodities. A significant change in prices of key commodities could adversely affect our business by reducing operating margins or decreasing consumer demand if retail prices are increased significantly. In the past, our vendors have experienced significant increases in commodity costs, especially diamond, gold and silver costs. If significant increases in commodity prices occur in the future, it could result in higher merchandise costs, which could materially impact our earnings. In addition, foreign currency exchange rates and fluctuations impact costs and cash flows associated with our Canadian operations and the acquisition of inventory from international vendors.

        A substantial portion of our raw materials and finished goods are sourced in countries generally described as having developing economies. Any instability in these economies could result in an interruption of our supplies, increases in costs, legal challenges and other difficulties.

        In August 2012, the SEC issued rules that require companies that manufacture products using certain minerals, including gold, to determine whether those minerals originated in the DRC or adjoining countries. If the minerals originate in the DRC, or if companies are not able to establish where they originated, extensive disclosure regarding the sources of those minerals, and in some instances an independent audit of the supply chain, is required. The costs of complying with the new rules are not expected to be material. The Company will be required to file its first disclosure report by May 31, 2014 for the calendar year ending December 31, 2013.

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        There may also be reputational risks with guests and other stakeholders if, due to the complexity of the global supply chain, we are unable to sufficiently verify the origin for the relevant metals. Also, if the responses of portions of our supply chain to the verification requests are adverse, it may harm our ability to obtain merchandise and add to compliance costs. Other minerals, such as diamonds, could be added to those currently covered by these rules.

         Our sales are dependent upon mall traffic.

        Our stores and kiosks are located primarily in shopping malls throughout the U.S., Canada and Puerto Rico. Our success is in part dependent upon the continued popularity of malls as a shopping destination and the ability of malls, their tenants and other mall attractions to generate customer traffic. Accordingly, a significant decline in this popularity, especially if it is sustained, would substantially harm our sales and earnings. In addition, even assuming this popularity continues, mall traffic can be negatively impacted by mall renovations, weather, gas prices and similar factors.

         We operate in a highly competitive and fragmented industry.

        The retail jewelry business is highly competitive and fragmented, and we compete with nationally recognized jewelry chains as well as a large number of independent regional and local jewelry retailers and other types of retailers who sell jewelry and gift items, such as department stores and mass merchandisers. We also compete with internet sellers of jewelry. Because of the breadth and depth of this competition, we are constantly under competitive pressure that both constrains pricing and requires extensive merchandising efforts in order for us to remain competitive.

         Any failure by us to manage our inventory effectively, including judgments related to consumer preferences and demand, will negatively impact our financial condition, sales and earnings.

        We purchase much of our inventory well in advance of each selling period. In the event we do not stock merchandise consumers wish to purchase or misjudge consumer demand, we will experience lower sales than expected and will have excessive inventory that may need to be written down in value or sold at prices that are less than expected, which could have a material adverse impact on our business and financial condition.

         Omnichannel retailing is rapidly evolving and our inability to keep pace with consumer preferences and expectations could adversely affect our financial performance.

        Our guests are increasingly using computers, tablets, mobile phones and other devices to shop in our stores and online for our products. There are various risks relating to omnichannel retailing, including the need to keep pace with rapid technological change, internet security risks, risks of systems failure or inadequacy and increased competition. If we are unable to timely and appropriately respond to these risks, including through maintenance of customer service and guest relationships, demand for our products and services and our financial performance could be adversely affected. Further, governmental regulation of internet-based commerce continues to evolve in areas such as taxation, privacy, data protection and mobile communications. Unfavorable changes to regulations in these areas could have a negative effect on our business.

         Unfavorable consumer responses to price increases or misjudgments about the level of markdowns could have a material adverse impact on our sales and earnings.

        From time to time, and especially in periods of rising raw material costs, we increase the retail prices of our products. Significant price increases could impact our earnings depending on, among other factors, the pricing by competitors of similar products and the response by the guest to higher prices. Such price increases may result in lower unit sales and a subsequent decrease in gross margin and adversely impact

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earnings. In addition, if we misjudge the level of markdowns required to sell our merchandise at acceptable turn rates, sales and earnings could be negatively impacted.

         Any failure of our pricing and promotional strategies to be as effective as desired will negatively impact our sales and earnings.

        We set the prices for our products and establish product specific and store-wide promotions in order to generate store traffic and sales. While these decisions are intended to maximize our sales and earnings, in some instances they do not. For instance, promotions, which can require substantial lead time, may not be as effective as desired or may prove unnecessary in certain economic circumstances. Where we have implemented a pricing or promotional strategy that does not work as expected, our sales and earnings will be adversely impacted.

         Any inability to recruit, train, motivate and retain suitably qualified sales associates could adversely impact sales and earnings.

        In specialty jewelry retailing, the level and quality of customer service is a key competitive factor as nearly every in-store transaction involves the sales associate taking a piece of jewelry or a watch out of a display case and presenting it to the potential guest. Competition for suitable individuals or changes in labor and healthcare laws could require us to incur higher labor costs. Therefore an inability to recruit, train, motivate and retain suitably qualified sales associates could adversely impact sales and earnings.

         Because of our dependence upon a small concentrated number of landlords for a substantial number of our locations, any significant erosion of our relationships with those landlords or their financial condition would negatively impact our ability to obtain and retain store locations.

        We are significantly dependent on our ability to operate stores in desirable locations with capital investment and lease costs that allow us to earn a reasonable return on our locations. We depend on the leasing market and our landlords to determine supply, demand, lease cost and operating costs and conditions. We cannot be certain as to when or whether desirable store locations will become or remain available to us at reasonable lease and operating costs. Several large landlords dominate the ownership of prime malls, and we are dependent upon maintaining good relations with those landlords in order to obtain and retain store locations on optimal terms. From time to time, we do have disagreements with our landlords and a significant disagreement, if not resolved, could have an adverse impact on our business. In addition, any financial weakness on the part of our landlords could adversely impact us in a number of ways, including decreased marketing by the landlords and the loss of other tenants that generate mall traffic.

         Any disruption in, or changes to, our private label credit card arrangements may adversely affect our ability to provide consumer credit and write credit insurance.

        We rely on third party credit providers to provide financing for our guests to purchase merchandise and credit insurance through private label credit cards. Any disruption in, or changes to, our credit card agreements could adversely affect our sales and earnings.

         Significant restrictions in the amount of credit available to our guests could negatively impact our business and financial condition.

        Our guests rely heavily on financing provided by credit lenders to purchase our merchandise. The availability of credit to our guests is impacted by numerous factors, including general economic conditions and regulatory requirements relating to the extension of credit. Numerous federal and state laws impose disclosure and other requirements upon the origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider.

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Regulations implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 imposed restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. Future regulations or changes in the application of current laws could further impact the availability of credit to our guests. If the amount of available credit provided to our guests is significantly restricted, our sales and earnings would be negatively impacted.

         We are dependent upon our revolving credit agreement, senior secured term loan and other third party financing arrangements for our liquidity needs.

        We have a revolving credit agreement and a senior secured term loan that contain various financial and other covenants. Should we be unable to fulfill the covenants contained in these loans, we would be in default, all outstanding amounts would be immediately due, and we would be unable to fund our operations without a significant restructuring of our business.

         If the credit markets deteriorate, our ability to obtain the financing needed to operate our business could be adversely impacted.

        We utilize a revolving credit agreement to finance our working capital requirements, including the purchase of inventory, among other things. If our ability to obtain the financing needed to meet these requirements was adversely impacted as a result of a deterioration in the credit markets, our business could be significantly impacted. In addition, the amount of available borrowings under our revolving credit agreement is based, in part, on the appraised liquidation value of our inventory. Any declines in the appraised value of our inventory could impact our ability to obtain the financing necessary to operate our business.

         Any security breach with respect to our information technology systems could result in legal or financial liabilities, damage to our reputation and a loss of guest confidence.

        During the course of our business, we regularly obtain and transmit through our information technology systems customer credit and other data. If our information technology systems are breached due to the actions of outside parties, or otherwise, an unauthorized third party may obtain access to confidential guest information. Any breach of our systems that results in unauthorized access to guest information could cause us to incur significant legal and financial liabilities, damage to our reputation and a loss of customer confidence. In each case, these impacts could have an adverse effect on our business and results of operations.

         Acquisitions and dispositions involve special risk, including the risk that we may not be able to complete proposed acquisitions or dispositions or that such transactions may not be beneficial to us.

        We have made significant acquisitions and dispositions in the past and may in the future make additional acquisitions and dispositions. Difficulty integrating an acquisition into our existing infrastructure and operations may cause us to fail to realize expected return on investment through revenue increases, cost savings, increases in geographic or product presence and guest reach or other projected benefits from the acquisition. In addition, we may not achieve anticipated cost savings or may be unable to find attractive investment opportunities for funds received in connection with a disposition. Additionally, attractive acquisition or disposition opportunities may not be available at the time or pursuant to terms acceptable to us and we may be unable to complete the acquisition or disposition.

         Our net operating loss carryforwards could be subject to limitations under the Internal Revenue Code.

        If we were to experience an "ownership change" under Section 382 of the Internal Revenue Code, our net operating loss carryforwards ("NOLs") would be subject to annual limitations that could impact the timing of the utilization of our NOLs as well as our ability to fully utilize our NOLs prior to their

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expiration. The determination of whether an ownership change has occurred is complex and depends upon a number of factors, including new issuances of shares by the Company and purchases and sales of shares by large stockholders, including the exercise of the outstanding warrants.

         Litigation and claims can adversely impact us.

        We are involved in various legal proceedings as part of the normal course of our business. Where appropriate, we establish reserves based on management's best estimates of our potential liability in these matters. While management believes that all current litigation and claims will be resolved without material effect on our financial position or results of operations, as with all litigation it is possible that there will be a significant adverse outcome.

         Ineffective internal controls can have adverse impacts on the Company.

        Under Federal law, we are required to maintain an effective system of internal controls over financial reporting. Should we not maintain an effective system, it would result in a violation of those laws and could impair our ability to produce accurate and timely financial statements. In turn, this could result in increased audit costs, a loss of investor confidence, difficulties in accessing the capital markets, and regulatory and other actions against us. Any of these outcomes could be costly to both our shareholders and us.

         Changes in estimates, assumptions and judgments made by management related to our evaluation of goodwill and other long-lived assets for impairment could significantly affect our financial results.

        Evaluating goodwill and other long-lived assets for impairment is highly complex and involves many subjective estimates, assumptions and judgments by our management. For instance, management makes estimates and assumptions with respect to future cash flow projections, terminal growth rates, discount rates and long-term business plans. If our actual results are not consistent with our estimates, assumptions and judgments made by management, we may be required to recognize impairments.

         Changes in estimates related to the recognition of revenue associated with lifetime warranty sales could significantly affect our financial results.

        We recognize revenue related to lifetime warranty sales in proportion to when the expected costs will be incurred, which we estimate will 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 affect our revenues and earnings.

         Additional factors may adversely affect our financial performance.

        Increases in expenses that are beyond our control including items such as increases in interest rates, inflation, fluctuations in foreign currency rates, higher tax rates and changes in laws and regulations (such as the Patient Protection and Affordable Care Act), may negatively impact our operating results.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        Not applicable.

ITEM 2.    PROPERTIES

        We lease a 430,000 square foot facility, which serves as our corporate headquarters and primary distribution facility. The lease for this facility extends through March 2018. The facility is located in Las Colinas, a planned business development in Irving, Texas, near the Dallas/Fort Worth International Airport. Our Canadian distribution operation is conducted in a leased 26,000 square foot facility in Toronto, Ontario. The lease expires in November 2014 and has a five-year renewal option.

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        We rent our store retail space under leases that generally range in terms from 5 to 10 years and may contain minimum rent escalation clauses, while kiosk leases generally range from 3 to 5 years. Most of the store leases provide for the payment of base rentals plus real estate taxes, insurance, common area maintenance fees and merchants association dues, as well as percentage rents based on the store's gross sales. In fiscal year 2013, most of our stores and kiosks only made base rental payments.

        We lease 21 percent of our store and kiosk locations from Simon Property Group and 11 percent of our store and kiosk locations from General Growth Management, Inc. No other lessor accounts for 10 percent or more of our store and kiosk locations. No store lease is individually material to our U.S. or Canadian operations.

        The following table indicates the expiration dates of our leases as of July 31, 2013:

Term Expires (Fiscal Year)	Stores		Kiosks		Other(a)		Total		Percentage of Total
2014		235		173		—		408		24.0	%
2015		182		226		1		409		24.1
2016		156		74		—		230		13.6
2017		170		40		—		210		12.4
2018 and thereafter		321		117		2		440		25.9
		1,064		630		3		1,697		100.0	%

(a)

Other includes the Store Support Center, Canada distribution center and storage facilities.

        Management believes that substantially all of the store leases expiring in fiscal year 2014 that it wishes to renew (including leases which expired earlier and are currently being operated under month-to-month extensions) will be renewed. We expect that leases will be renewed on terms not materially different than the terms of the expiring or expired leases. Management believes our facilities are suitable and adequate for our business as presently conducted.

ITEM 3.    LEGAL PROCEEDINGS AND OTHER MATTERS

        Information regarding legal proceedings is incorporated by reference from Note 18 to our consolidated financial statements set forth, under the heading, "Contingencies," in Part IV of this report.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.

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ITEM 4A.    EXECUTIVE OFFICERS OF THE REGISTRANT

        The following individuals serve as the executive officers of the Company. Executive officers are elected by the Board of Directors annually, each to serve until his or her successor is elected and qualified, or until his or her earlier resignation, removal from office or death.

Name	Age		Position
Executive Officers
Theo Killion		62	Chief Executive Officer
Matthew W. Appel		57	Chief Administrative Officer
Gilbert P. Hollander		60	Executive Vice President, Chief Merchant and Sourcing Officer
Richard A. Lennox		48	Executive Vice President, Chief Marketing Officer
Thomas A. Haubenstricker		51	Senior Vice President, Chief Financial Officer
Other Officers
Jeannie Barsam		52	Senior Vice President, Merchandise Planning and Allocation
Ken Brumfield		49	Senior Vice President, Financial Products
Brad Furry		54	Senior Vice President, Chief Information Officer
Richard J. Golden		48	Senior Vice President, Real Estate
John A. Legg		52	Senior Vice President, Supply Chain
Becky Mick		51	Senior Vice President, Chief Stores Officer
Toyin Ogun		53	Senior Vice President, Human Resources
Jamie Singleton		52	Senior Vice President and General Manager of Piercing Pagoda
Bridgett Zeterberg		49	Senior Vice President, General Counsel and Secretary

Executive Officers

        The following is a brief description of the business experience of the Company's executive officers for at least the past five years.

Mr. Theo Killion has served as Chief Executive Officer of the Company since September 23, 2010. He served as President of the Company from August 5, 2008 to September 23, 2010, and as Interim Chief Executive Officer from January 13, 2010 to September 23, 2010. From January 23, 2008 to August 5, 2008, Mr. Killion served as Executive Vice President of Human Resources, Legal and Corporate Strategy. From May 2006 to January 2008, Mr. Killion was employed with the executive recruiting firm Berglass+Associates, focusing on companies in the retail, consumer goods and fashion industries. From April 2004 through April 2006, Mr. Killion served as Executive Vice President of Human Resources at Tommy Hilfiger. From 1996 to 2004, Mr. Killion served in various management positions with Limited Brands. Mr. Killion serves on the board of Express, Inc.

Mr. Matthew W. Appel was appointed Chief Administrative Officer of the Company effective May 5, 2011. Mr. Appel was named Executive Vice President of the Company effective May 2009 and appointed Chief Financial Officer of the Company on June 15, 2009. From March 2007 to May 2009, Mr. Appel served as Vice President and Chief Financial Officer of ExlService Holdings, Inc. Prior to ExlService Holdings, Inc, Mr. Appel was Vice President, BPO Product Management from 2006 to 2007 and Vice President, Finance and Administration BPO from 2003 through 2005 at Electronic Data Systems Corporation. From 2001 to 2003, Mr. Appel was the Senior Vice President, Finance and Accounting BPO at Affiliated Computer Services, Inc. Mr. Appel began his career with Arthur Andersen, where he spent seven years in their audit practice. Mr. Appel is a certified public accountant and certified management accountant.

Mr. Gilbert P. Hollander was appointed Executive Vice President and Chief Sourcing Officer in September 2007, and was given the additional title of Chief Merchandising Officer on January 13, 2010. Prior to that appointment, Mr. Hollander served as President, Corporate Sourcing/Piercing Pagoda

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beginning in May 2006, and was given the additional title of Group Senior Vice President in August 2006. From January 2005 to August 2006, he served as President, Piercing Pagoda. Prior to and up until that appointment, Mr. Hollander served as Vice President of Divisional Merchandise for Piercing Pagoda, to which he was appointed in August 2003. Mr. Hollander served as Senior Vice President of Merchandising for Piercing Pagoda from February 2000 to August 2003. Prior to February 2000, Mr. Hollander held various management positions within Piercing Pagoda beginning in May of 1997.

Mr. Richard A. Lennox was appointed Executive Vice President, Chief Marketing Officer of the Company effective August 2009. Prior to joining the Company, Mr. Lennox served as Executive Vice President, Marketing Director at J. Walter Thompson–New York. Mr. Lennox started at J. Walter Thompson in 1989 and held various senior level marketing positions. He began his career in 1987 with AGB–London.

Mr. Thomas A. Haubenstricker was appointed Senior Vice President, Chief Financial Officer effective October 2011. Prior to joining the Company, Mr. Haubenstricker served as Managing Director at Turnberry Advisors from January 2010 to October 2011. Prior to that, Mr. Haubenstricker spent 24 years at Electronic Data Systems (later acquired by Hewlett-Packard) in various finance and strategy leadership roles including Co-Chief Financial Officer, Vice President and Chief Financial Officer, EMEA Region, and Vice President, Finance for the combined Hewlett-Packard and EDS Business Services Group.

Other Officers

Ms. Jeannie Barsam was appointed Senior Vice President, Merchandise Planning and Allocation in March 2011. Prior to joining the Company, Ms. Barsam served as Senior Vice President, Planning and Allocation of Charlotte Russe, Inc. from November 2009 to February 2011. From December 2007 to November 2009, Ms. Barsam served as Senior Vice President, Merchandise Planning and Allocation of The Talbots, Inc. Prior to The Talbots, Inc., Ms. Barsam held various senior management positions with Gap, Inc. from August 2000 to December 2007.

Mr. Ken Brumfield has served as Senior Vice President, Financial Products since February 2012. He served as Vice President of Financial Products from May 2011 to January 2012 and as Vice President of Credit from September 2010 to April 2011. Prior to joining the Company, Mr. Brumfield served as Director of Sales at Alliance Data Systems, Inc. from September 2003 through September 2010. From November 1997 to September 2003, Mr. Brumfield served as Senior Vice President of Credit Services at Stage Stores, Inc. From September 1986 to November 1997, Mr. Brumfield held various management positions with Zale Corporation.

Mr. Brad Furry was appointed Senior Vice President, Chief Information Officer effective September 2011. Prior to joining the Company, Mr. Furry served as Vice President of Enterprise Services at The Neiman Marcus Group from December 2009 to September 2011. From March 1990 to December 2009, Mr. Furry held various Information Technology management positions with The Neiman Marcus Group.

Mr. Richard J. Golden was appointed Senior Vice President, Real Estate in May 2013. Prior to joining the Company, Mr. Golden served as Managing Partner of the R. Golden Group from August 2012 to April 2013 providing real estate consulting services to Private Equity and Venture Capital groups. From September 2008 to August 2012, Mr. Golden served as Director of Real Estate at HEB Grocery Company. From January 2005 to September 2008, Mr. Golden served as Senior Vice President of Real Estate at Designer Shoe Warehouse ("DSW"). Prior to DSW, Mr. Golden served as a Vice President of Real Estate at Gap Inc. from 1992 to 2004.

Mr. John A. Legg was appointed Senior Vice President, Supply Chain in August 2010. Prior to joining the Company, Mr. Legg served as Managing Director of Management Services International, LLC from 2008 to 2010. From 2007 to 2008, Mr. Legg was Senior Vice President, Global Distribution and Logistics of

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The Warnaco Group, Inc. Prior to The Warnaco Group, Inc., Mr. Legg was Vice President, International Distribution of Liz Claiborne, Inc., from 1999 to 2007.

Ms. Becky Mick was appointed Senior Vice President, Chief Stores Officer in July 2010. Ms. Mick served as Vice President Zale North America since joining the Company in September 2008. Prior to joining the Company, Ms. Mick served as Vice President, Director of Stores and Operations of The Disney Store from May 2006 to April 2008. Ms. Mick served as Vice President of The Children's Place from August 2005 to May 2006. From 1997 to 2005, Ms. Mick held various management positions with Old Navy.

Mr. Toyin Ogun was appointed Senior Vice President, Human Resources in March 2011. Prior to joining the Company, Mr. Ogun served as Vice President, Human Resources of L.L. Bean, Inc. from October 2009 to March 2010. Mr. Ogun served as Senior Vice President and Chief Talent Officer of Sears Holdings from August 2007 to August 2009. Prior to Sears Holdings, Mr. Ogun held various senior management positions with Limited Brands, Inc. from February 1998 to August 2007.

Ms. Jamie Singleton was appointed Senior Vice President and General Manager of Piercing Pagoda effective March 2012. Prior to joining Zale Corporation, Ms. Singleton served as Senior Vice President, Business Expansion at CPI Corp from May 2010 to April 2012. From May 2007 to May 2010, she owned and operated Custom Brands International, Inc. She served as Senior Vice President, General Merchandising Manager from May 2004 to April 2007 and Vice President of Merchandising from March 2002 to May 2004 at the David's Bridal and After Hours Formalwear divisions of May Company's Bridal Group.

Mrs. Bridgett Zeterberg was appointed Senior Vice President, General Counsel and Secretary in July 2013. She served as Vice President, General Counsel and Secretary from February 2012 to July 2013 and as Associate General Counsel from September 2011 to February 2012. From September 2010 to September 2011, Mrs. Zeterberg served as a Senior Attorney of the Company. Prior to joining the Company, Mrs. Zeterberg served in various Director and Vice President positions in the legal and human resource functions of Accor North America from January 1995 to December 2009.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is listed on the New York Stock Exchange under the symbol "ZLC." The following table sets forth the high and low closing prices as reported on the NYSE for our common stock for each fiscal quarter during the two most recent fiscal years.

	2013				2012
	High		Low		High		Low
First	$	7.31	$	3.02	$	6.16	$	2.26
Second	$	7.50	$	3.93	$	4.01	$	2.83
Third	$	5.12	$	3.81	$	3.47	$	2.57
Fourth	$	9.68	$	4.36	$	3.16	$	2.20

        As of September 23, 2013, the Company's outstanding shares of common stock were held by approximately 417 holders of record. We have not paid dividends on the common stock since its initial issuance on July 30, 1993, and do not anticipate paying dividends on the common stock in the foreseeable future. In addition, our revolving credit agreement and our senior secured term loan limit our ability to pay dividends or repurchase our common stock. The Company has the right to pay dividends if, after giving effect to the dividend payment, the Company satisfies: (i) a minimum pro forma borrowing availability requirement equal to the lesser of 17.5 percent of the aggregate commitments or the aggregate borrowing base under the revolving credit agreement and (ii) a minimum pro forma fixed charge coverage ratio of 1.1. At July 31, 2013, we had borrowing availability under the terms of the revolving credit agreement of approximately $242 million and a fixed charge coverage ratio of 2.72. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" and "Notes to Consolidated Financial Statements—Long-Term Debt" for additional information related to our revolving credit agreement and senior secured term loan.

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Corporate Performance Graph

        The following graph shows a comparison of cumulative total returns for the Company, the S&P 500 Index, the S&P 600 Specialty Store Index and the S&P 600 Smallcap Index for the period from July 31, 2008 to July 31, 2013. The comparison assumes $100 was invested on July 31, 2008 in the Company's common stock and in each of the three indices and, for the S&P 500 Index, the S&P 600 Specialty Store Index and the S&P 600 Smallcap Index, assumes reinvestment of dividends. The Company has not paid any dividends during this period.

	7/31/2008		1/31/2009		7/31/2009		1/31/2010		7/31/2010		1/31/2011		7/31/2011		1/31/2012		7/31/2012		1/31/2013		7/31/2013
Zale Corporation	$	100.00	$	5.61	$	26.76	$	9.86	$	7.96	$	21.11	$	25.36	$	12.88	$	13.65	$	22.24	$	41.95
S&P 500		100.00		66.05		80.04		87.94		91.11		107.45		109.02		111.98		118.97		130.77		148.72
S&P Smallcap 600		100.00		63.45		80.73		88.18		96.21		115.46		119.99		124.11		124.78		143.29		168.17
S&P 600 Specialty Store		100.00		54.89		96.47		112.22		126.87		163.88		159.74		156.87		206.73		253.46		262.72

The stock price performance depicted in the above graph is not necessarily indicative of future price performance. The Corporate Performance Graph shall not be deemed "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing by the Company under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates the graph by reference in such filing.

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ITEM 6.    SELECTED FINANCIAL DATA

        The following selected financial data is qualified in its entirety by our consolidated financial statements (and the related notes thereto) contained elsewhere in this Annual Report on Form 10-K and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The statement of operations data and balance sheet data for each of the fiscal years ended July 31, 2013, 2012, 2011, 2010 and 2009 has been derived from our audited consolidated financial statements. During fiscal year 2008, we sold Bailey Banks & Biddle. As a result, their operations are reflected as discontinued operations in the following consolidated statements of operations. All amounts in the following table are in thousands, except per share amounts.

	Year Ended July 31,
	2013			2012			2011			2010			2009
Revenues(a)	$	1,888,016		$	1,866,878		$	1,742,563		$	1,616,305		$	1,779,744
Cost of sales(b)		903,602			905,613			862,468			802,172			948,572
Gross margin		984,414			961,265			880,095			814,133			831,172
Selling, general and administrative		916,274			902,287			859,588			846,205			934,249
Depreciation and amortization		33,770			37,887			41,326			50,005			58,947
Other (gains) charges(c)		(748	)		1,973			7,047			33,370			46,940
Operating earnings (loss)		35,118			19,118			(27,866	)		(115,447	)		(208,964	)
Interest expense(d)		23,182			44,649			82,619			15,657			10,399
Other gains(e)		—			—			—			(6,564	)		—
Earnings (loss) before income taxes		11,936			(25,531	)		(110,485	)		(124,540	)		(219,363	)
Income tax expense (benefit)		1,924			1,365			1,557			(28,750	)		(53,015	)
Earnings (loss) from continuing operations		10,012			(26,896	)		(112,042	)		(95,790	)		(166,348	)
Earnings (loss) from discontinued operations, net of taxes		—			(414	)		(264	)		2,118			(23,155	)
Net earnings (loss)	$	10,012		$	(27,310	)	$	(112,306	)	$	(93,672	)	$	(189,503	)
Basic net earnings (loss) per common share:
Earnings (loss) from continuing operations	$	0.31		$	(0.84	)	$	(3.49	)	$	(2.99	)	$	(5.21	)
Earnings (loss) from discontinued operations		—			(0.01	)		(0.01	)		0.07			(0.73	)
Net earnings (loss) per share	$	0.31		$	(0.85	)	$	(3.50	)	$	(2.92	)	$	(5.94	)
Diluted net earnings (loss) per common share:
Earnings (loss) from continuing operations	$	0.24		$	(0.84	)	$	(3.49	)	$	(2.99	)	$	(5.21	)
Earnings (loss) from discontinued operations		—			(0.01	)		(0.01	)		0.07			(0.73	)
Net earnings (loss) per share	$	0.24		$	(0.85	)	$	(3.50	)	$	(2.92	)	$	(5.94	)
Weighted-average number of common shares outstanding:
Basic		32,429			32,196			32,129			32,062			31,899
Diluted		40,958			32,196			32,129			32,062			31,899
Balance Sheet Data:
Working capital	$	427,536		$	425,623		$	399,553		$	372,109		$	460,885
Total assets		1,187,255			1,180,468			1,188,758			1,171,278			1,230,972
Long-term debt		410,050			452,908			395,454			284,684			310,500
Total stockholders' investment		185,329			178,936			212,827			308,020			373,793

(a)

Prior to fiscal year 2012, the Company recognized revenues from lifetime warranties on a straight-line basis. During the first quarter of fiscal year 2012, we began recognizing revenues related to lifetime warranty sales in proportion to when the expected costs will be incurred. Fiscal year 2012 revenues include a $34.9 million adjustment resulting from the change in revenue recognition related to lifetime warranties. See Note 19 to our consolidated financial statements for additional information.

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(b)

In fiscal year 2009, cost of sales includes a charge of $13.5 million related to inventory impairments.

(c)

Fiscal years 2013, 2012, 2011 and 2010 includes $1.4 million, $2.0 million, $7.0 million and $33.4 million related to costs associated with store closures and store impairments, respectively. Fiscal year 2013 includes a gain totaling $2.2 million related to the De Beers group settlement. Fiscal year 2009 includes $46.9 million related to costs associated with store closures, store impairments and goodwill impairments.

(d)

Fiscal year 2012 includes costs incurred related to the debt refinancing transactions completed in July 2012 totaling $5.0 million. Fiscal year 2011 includes a charge of $45.8 million associated with an amendment to our senior secured term loan in September 2010.

(e)

Fiscal year 2010 includes a gain of $8.3 million related to a decrease in the fair value of the warrants issued in connection with the senior secured term loan and a $1.7 million charge related to debt issuance costs attributable to the warrants.

Segment Data

        We report our business under three segments: Fine Jewelry, Kiosk Jewelry and All Other. All Other includes insurance and reinsurance operations. Operating earnings by segment are calculated 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

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related costs, administrative costs, information technology costs, corporate facilities costs and depreciation and amortization. All amounts in the following table are in thousands.

	Year Ended July 31,
Selected Financial Data by Segment	2013			2012			2011			2010			2009
Revenues:
Fine Jewelry(a)	$	1,637,359		$	1,617,684		$	1,493,294		$	1,379,695		$	1,535,626
Kiosk		239,722			238,692			239,231			226,187			232,809
All Other		10,935			10,502			10,038			10,423			11,309
Total revenues	$	1,888,016		$	1,866,878		$	1,742,563		$	1,616,305		$	1,779,744
Depreciation and amortization:
Fine Jewelry	$	22,230		$	23,924		$	28,009		$	35,558		$	42,407
Kiosk		2,694			3,153			3,361			4,120			4,899
All Other		—			—			—			—			—
Unallocated		8,846			10,810			9,956			10,327			11,641
Total depreciation and amortization	$	33,770		$	37,887		$	41,326		$	50,005		$	58,947
Operating earnings (loss):
Fine Jewelry(b)	$	49,112		$	31,464		$	(15,875	)	$	(83,630	)	$	(192,683	)
Kiosk(c)		15,915			14,850			15,270			13,133			2,465
All Other		5,226			5,091			5,184			3,543			5,706
Unallocated(d)		(35,135	)		(32,287	)		(32,445	)		(48,493	)		(24,452	)
Total operating earnings (loss)	$	35,118		$	19,118		$	(27,866	)	$	(115,447	)	$	(208,964	)
Assets(e):
Fine Jewelry(f)	$	852,308		$	821,427		$	807,771		$	820,353		$	868,227
Kiosk		73,975			85,828			85,999			85,631			107,457
All Other		27,725			38,110			40,406			33,643			24,842
Unallocated		233,247			235,103			254,582			231,651			230,446
Total assets	$	1,187,255		$	1,180,468		$	1,188,758		$	1,171,278		$	1,230,972
Capital expenditures:
Fine Jewelry	$	16,513		$	13,843		$	8,818		$	9,945		$	18,702
Kiosk		546			—			—			—			420
All Other		—			—			—			—			—
Unallocated		5,970			5,932			6,497			4,705			9,235
Total capital expenditures	$	23,029		$	19,775		$	15,315		$	14,650		$	28,357

(a)

Includes $316.9, $313.0, $298.1, $260.7 and $256.7 million in fiscal years 2013, 2012, 2011, 2010 and 2009, respectively, related to foreign operations. In addition, fiscal year 2012 includes a $34.9 million adjustment as a result of a change in the revenue recognition related to lifetime warranties.

(b)

Includes $1.4, $2.0, $7.0 and $32.3 million in fiscal years 2013, 2012, 2011 and 2010, respectively, related to charges associated with store closures and store impairments. Fiscal year 2009 includes $46.5 million related to charges associated with store closures, store impairments and goodwill impairments. Fiscal year 2009 also includes $13.5 million related to an inventory impairment charge. In addition, fiscal year 2012 includes $34.9 million of additional earnings as a result of a change in the revenue recognition related to lifetime warranties.

(c)

Includes $1.1 million in fiscal year 2010 related to charges associated with store impairments. Fiscal 2009 includes $0.4 million related to costs associated with store closures.

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(d)

Includes credits of $63.4, $58.9, $50.8, $55.5 and $60.1 million in fiscal years 2013, 2012, 2011, 2010 and 2009, respectively, to offset internal carrying costs charged to the segments. Fiscal year 2013 also includes a gain totaling $2.2 million related to the De Beers group settlement.

(e)

Assets allocated to segments include fixed assets, inventories, goodwill and investments held by our insurance operations. Unallocated assets include cash, prepaid assets such as rent, corporate office improvements and technology infrastructure.

(f)

Includes $31.2, 31.3, $33.4, $35.4 and $40.6 million of fixed assets in fiscal years 2013, 2012, 2011, 2010 and 2009, respectively, related to foreign operations.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        For important information regarding forward-looking statements made in this Management's Discussion and Analysis of Financial Condition and Results of Operations see "Item 1A—Risk Factors."

Overview of Fiscal Year 2013

        We are a leading specialty retailer of fine jewelry in North America. At July 31, 2013, we operated 1,064 fine jewelry stores and 630 kiosks located primarily in shopping malls throughout the United States, Canada and Puerto Rico.

        We report our business under three operating 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. These five brands have been aggregated into one reportable segment. 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.

        Comparable store sales increased by 3.3 percent during fiscal year 2013. At constant exchange rates, which excludes the effect of translating Canadian currency denominated sales into U.S. dollars, comparable store sales increased by 3.1 percent during fiscal year 2013. Gross margin increased by 60 basis points to 52.1 percent for the fiscal year ended July 31, 2013 compared to the prior year. The increase is primarily due to the relatively stable commodity cost environment compared to the prior year resulting in a lower last-in, first-out ("LIFO") inventory charge. Net earnings for fiscal year 2013 were $10.0 million compared to a net loss of $27.3 million in the prior year. The $37.3 million improvement is primarily the result of an increase in gross margin and a $21.5 million decrease in interest expense, partially offset by a $14.0 million increase in selling, general and administrative expense ("SG&A").

        Revenues associated with warranties totaled $147.4 million during fiscal year 2013 compared to $146.8 million in the prior year. The increase in fiscal year 2013 is primarily due to higher warranty cash sales compared to the prior year. Gross margin associated with warranties totaled $120.1 million during fiscal year 2013 compared to $120.8 million in the prior year.

        In fiscal year 2013, we achieved several important milestones and continued to take steps that we believe will generate significant financial improvement and increase shareholder value, including:

•

improved net earnings by $37.3 million to $10.0 million, achieving our goal of generating positive net earnings for the first time since fiscal year 2008;

•

increased the mix of our exclusive, branded merchandise to 11 percent of Fine Jewelry's revenues in fiscal year 2013, compared to 8 percent in the prior year;

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•

launched a multi-year sourcing initiative as a catalyst to achieving future gross margin improvement;

•

signed a multi-year Private Label Credit Card Program agreement with Alliance Data Systems Corporation ("ADS") to provide private label credit card financing for our U.S. guests at significantly lower merchant fees, while also providing key marketing, analytical and technical services designed to generate sales and enhance brand affinity;

•

reduced our outstanding debt balance by $43 million;

•

continued to expand our omnichannel business model to provide guests access to our brands wherever and whenever they choose through webstores, mobile devices, social media and traditional stores; and

•

strengthened the stewardship of the Company by appointing Terry Burman Chairman of our Board of Directors.

Outlook for Fiscal Year 2014

        In fiscal year 2014, we will continue to invest in the business to drive profitable growth and increase shareholder value. We expect to achieve this growth as a result of:

•

an increase in revenues driven by positive comparable store sales in our Zales and Peoples brands and the growth of our exclusive, branded merchandise;

•

gross margin improvement related primarily to benefits from the sourcing initiative launched in fiscal year 2013 and a more favorable commodity cost environment;

•

slightly higher selling, general and administrative expenses, as a percent of revenues, due to initiatives targeted at driving future revenue growth;

•

an improvement in operating margin of 50 basis points or more;

•

interest expense consistent with fiscal year 2013; and

•

income tax expense of $2 million to $3 million.

        We anticipate capital expenditures will be between $40 million and $45 million in fiscal year 2014. The increase in capital expenditures compared to the $23 million spent in fiscal year 2013 is primarily the result of new store openings, refurbishment of existing stores, upgrades to our point-of-sale hardware and software and improved connectivity in our stores. We expect net store closures in fiscal year 2014 of 50 to 55 locations, primarily in Gordon's and Mappins. The closures are expected to impact total revenues by approximately 250 basis points.

Comparable Store Sales

        Comparable store sales include internet sales and repair sales but exclude revenue recognized from warranties and insurance premiums related to credit insurance policies sold to guests who purchase merchandise under our proprietary credit programs. The sales results of new stores are included beginning with their thirteenth full month of operation. The results of stores that have been relocated, renovated or refurbished are included in the calculation of comparable store sales on the same basis as other stores. However, stores closed for more than 90 days due to unforeseen events (e.g., hurricanes, etc.) are excluded from the calculation of comparable store sales.

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        The following table presents comparable store sales for each of our brands for the periods indicated.

	Year Ended July 31,
Comparable Store Sales	2013			2012			2011
Zales		4.9	%		11.0	%		8.4	%
Outlet		3.3	%		9.6	%		8.8	%
Peoples		5.7	%		4.3	%		14.0	%
Gordon's		(3.6	)%		1.7	%		3.6	%
Mappins		(6.7	)%		(1.5	)%		11.9	%
Piercing Pagoda		1.3	%		(1.0	)%		3.6	%
Total Company		3.3	%		6.9	%		8.1	%
Comparable Store Sales (in constant currency)
Peoples		4.8	%		5.9	%		7.9	%
Mappins		(7.5	)%		0.1	%		5.9	%

Non-GAAP Financial Measure

        We report our consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"). However, the non-GAAP performance measure of EBITDA (defined as earnings before interest, income taxes and depreciation and amortization) is presented to enhance investors' ability to analyze trends in our business and evaluate our performance relative to other companies. We use the non-GAAP financial measure to monitor the performance of our business and assist us in explaining underlying trends in the business.

        EBITDA is a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net earnings (loss) or other GAAP measures as an indicator of operating performance. In addition, EBITDA should not be considered as an alternative to operating earnings (loss) or net earnings (loss) as a measure of operating performance. Our calculation of EBITDA may differ from others in our industry and is not necessarily comparable with similar titles used by other companies.

        The following table reconciles EBITDA to earnings (loss) from continuing operations as presented in our consolidated statements of operations:

	Year Ended July 31,
	2013		2012			2011
Earnings (loss) from continuing operations	$	10,012	$	(26,896	)	$	(112,042	)
Depreciation and amortization		33,770		37,887			41,326
Interest expense		23,182		44,649			82,619
Income tax expense		1,924		1,365			1,557
EBITDA	$	68,888	$	57,005		$	13,460

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Results of Operations

        The following table sets forth certain financial information from our audited consolidated statements of operations expressed as a percentage of total revenues and should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

	Year Ended July 31,
	2013			2012			2011
Revenues		100.0	%		100.0	%		100.0	%
Cost of sales		47.9			48.5			49.5
Gross margin		52.1			51.5			50.5
Selling, general and administrative		48.5			48.3			49.3
Depreciation and amortization		1.8			2.0			2.4
Other (gains) charges		—			0.1			0.4
Operating earnings (loss)		1.9			1.0			(1.6	)
Interest expense		1.2			2.4			4.7
Earnings (loss) before income taxes		0.6			(1.4	)		(6.3	)
Income tax expense		0.1			0.1			0.1
Earnings (loss) from continuing operations		0.5			(1.5	)		(6.4	)
Loss from discontinued operations, net of taxes		—			—			—
Net earnings (loss)		0.5	%		(1.5	)%		(6.4	)%

Year Ended July 31, 2013 Compared to Year Ended July 31, 2012

        Revenues.    Revenues for fiscal year 2013 were $1,888.0 million, an increase of 1.1 percent compared to revenues of $1,866.9 million in the prior year. Comparable store sales increased 3.3 percent as compared to the prior year. The increase in comparable store sales was attributable to a 3.2 percent increase in the average price per unit and a 2.4 percent increase in the number of units sold in our bridal product lines, partially offset by a decrease in the number of units sold in Fine Jewelry's core fashion product lines. The increase was partially offset by a decrease in revenues related to 84 store closures since July 31, 2012 (net of store openings).

        Fine Jewelry contributed $1,637.4 million of revenues in the fiscal year ended July 31, 2013, an increase of 1.2 percent as compared to $1,617.7 million in the prior year.

        Kiosk Jewelry contributed $239.7 million of revenues in the fiscal year ended July 31, 2013, an increase of 0.4 percent compared to $238.7 million in the prior year. The increase in revenues is due to a 4.5 percent increase in the average price per unit, partially offset by a 2.9 percent decrease in the number of units sold. The increase was partially offset by a decrease in revenues related to 24 kiosk closures since July 31, 2012 (net of openings).

        All Other contributed $10.9 million in revenues for the fiscal year ended July 31, 2013, an increase of 4.1 percent compared to $10.5 million in the prior year.

        During the fiscal year ended July 31, 2013, we closed 61 stores in Fine Jewelry and 36 locations in Kiosk Jewelry. In addition, we opened one store in Fine Jewelry and 12 locations in Kiosk Jewelry.

        Gross Margin.    Gross margin represents net sales less cost of sales. Cost of sales includes cost related to merchandise sold, receiving and distribution, guest repairs and repairs associated with warranties. Gross margin was 52.1 percent of revenues for the year ended July 31, 2013, compared to 51.5 percent in the prior year. The 60 basis point improvement is due primarily to the relatively stable commodity cost environment compared to the prior year resulting in a lower LIFO inventory charge.

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        Selling, General and Administrative.    Included in SG&A are store operating, advertising, buying, cost of insurance operations and general corporate overhead expenses. SG&A was 48.5 percent of revenues for the year ended July 31, 2013, compared to 48.3 percent in the prior year. SG&A increased by $14.0 million to $916.3 million for the year ended July 31, 2013. The increase is related to a $24.9 million increase in costs associated primarily with performance-based compensation related to improved earnings, initiatives involving merchandise sourcing and training, consulting fees and our special events program that began in the second quarter of the prior year. The increase was partially offset by a $10.9 million decrease in promotional costs, including $2.9 million related to production costs.

        Depreciation and Amortization.    Depreciation and amortization as a percent of revenues for the year ended July 31, 2013 and 2012 was 1.8 percent and 2.0 percent, respectively. The decrease is primarily related to 84 stores closed (net of store openings) during fiscal year 2013 and an increase in the number of fully depreciated assets compared to the prior year, partially offset by additional capital expenditures.

        Other (Gains) Charges.    Other gains for the year ended July 31, 2013 includes proceeds totaling $2.2 million related to the De Beers settlement, partially offset by a $1.1 million charge related to the impairment of long-lived assets associated with underperforming stores and a $0.3 million charge associated with store closures. Other charges for the year ended July 31, 2012 includes a $1.8 million charge related to the impairment of long-lived assets associated with underperforming stores and a $0.2 million charge associated with store closures.

        Interest Expense.    Interest expense as a percent of revenues for the years ended July 31, 2013 and 2012 was 1.2 percent and 2.4 percent, respectively. Interest expense decreased by $21.5 million to $23.2 million for the year ended July 31, 2013. The decrease is due primarily to the debt refinancing transactions completed in July 2012, which resulted in an effective interest rate of 3.8 percent for fiscal year 2013, compared to 7.4 percent in the prior year. In addition, interest expense in the prior year included a $5.0 million charge as a result of an amendment to the term loan in July 2012. The decrease was partially offset by an increase in the average borrowings in fiscal year 2013 compared to the prior year.

        Income Tax Expense.    Income tax expense totaled $1.9 million for the year ended July 31, 2013, compared to $1.4 million in the prior year. Income tax expense for the year ended July 31, 2013 is primarily associated with operating earnings related to our Canadian subsidiaries. Income tax expense for the year ended July 31, 2012 is primarily associated with operating earnings related to our Canadian subsidiaries, partially offset by the release of certain state tax reserves totaling $1.7 million.

Year Ended July 31, 2012 Compared to Year Ended July 31, 2011

        Revenues.    Revenues for fiscal year 2012 were $1,866.9 million, an increase of 7.1 percent compared to revenues of $1,742.6 million in the prior year. Comparable store sales increased 6.9 percent as compared to the prior year. The increase in comparable store sales was attributable to an 8.4 percent increase in the number of units sold in our fine jewelry stores, partially offset by a 0.5 percent decrease in the average price per unit. The increase in revenues was also due to a $49.9 million increase in revenues related to warranties, of which $34.9 million is the result of a change in revenue recognition related to lifetime warranties. The increase was partially offset by a decrease in revenues related to 51 store closures (net of store openings) during fiscal year 2012.

        Fine Jewelry contributed $1,617.7 million of revenues in the fiscal year ended July 31, 2012, an increase of 8.3 percent as compared to $1,493.3 million in the prior year.

        Kiosk Jewelry contributed $238.7 million of revenues in the fiscal year ended July 31, 2012, a decrease of 0.2 percent compared to $239.2 million in the prior year. The decrease in revenues is due to a 6.1 percent decrease in the number of units sold, partially offset by a 5.5 percent increase in average price per unit.

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        All Other contributed $10.5 million in revenues for the fiscal year ended July 31, 2012, an increase of 4.6 percent compared to $10.0 million in the prior year.

        During the fiscal year ended July 31, 2012, we converted nine Gordon's stores to the Zales nameplate and one Zales store to the Zales Outlet nameplate in Fine Jewelry. We opened two locations in Kiosk Jewelry. In addition, we closed 49 stores in Fine Jewelry and 14 locations in Kiosk Jewelry.

        Gross Margin.    Gross margin represents net sales less cost of sales. Cost of sales includes cost related to merchandise sold, receiving and distribution, guest repairs and repairs associated with warranties. Gross margin increased by 100 basis points to 51.5 percent during fiscal year 2012. Gross margin compared to the prior year was impacted by a 90 basis point improvement resulting from a change in warranty revenue recognition and a 30 basis point LIFO inventory charge. Excluding these items, gross margin improved by 40 basis points as a result of an increase in retail prices and lower merchandise discounts, partially offset by an increase in the cost of merchandise.

        Selling, General and Administrative.    Included in SG&A are store operating, advertising, buying, cost of insurance operations and general corporate overhead expenses. SG&A was 48.3 percent of revenues for the year ended July 31, 2012, compared to 49.3 percent in the prior year. SG&A increased by $42.7 million to $902.3 million for the year ended July 31, 2012. The increase is primarily the result of an $18.0 million increase in promotional costs, including production costs and marketing for the launch of proprietary products during the second quarter, an $11.1 million increase in labor costs to support increased sales, an $11.4 million increase in proprietary credit fees and a $3.1 million increase in professional fees. The increase was partially offset by a $3.6 million decrease in occupancy costs primarily related to 51 stores closed (net of store openings) during fiscal year 2012.

        Depreciation and Amortization.    Depreciation and amortization as a percent of revenues for the year ended July 31, 2012 and 2011 was 2.0 percent and 2.4 percent, respectively. The decrease is primarily related to 51 stores closed (net of store openings) during fiscal year 2012.

        Other Charges.    Other charges for the year ended July 31, 2012 includes a $1.8 million charge related to the impairment of long-lived assets associated with underperforming stores and a $0.2 million charge associated with store closures. Other charges for the year ended July 31, 2011 includes a $6.8 million charge related to the impairment of long-lived assets associated with underperforming stores and a $0.3 million charge associated with store closures.

        Interest Expense.    Interest expense as a percent of revenues for the years ended July 31, 2012 and 2011 was 2.4 percent and 4.7 percent, respectively. Interest expense decreased by $38.0 million to $44.6 million for the year ended July 31, 2012. The decrease is the result of a $45.8 million charge recorded in the first quarter of fiscal year 2011 related to an amendment to the term loan on September 24, 2010, partially offset by a $5.0 million charge recorded in the fourth quarter of fiscal year 2012 as a result of an amendment to the term loan on July 24, 2012. Excluding these charges, interest expense increased $2.9 million due primarily to an increase in the average borrowings compared to the prior year.

        Income Tax Expense.    Income tax expense totaled $1.4 million for the year ended July 31, 2012, compared to $1.6 million in the prior year. Income tax expense for the year ended July 31, 2012 is primarily associated with operating earnings related to our Canadian subsidiaries, partially offset by the release of certain state tax reserves totaling $1.7 million. Income tax expense for the year ended July 31, 2011 is primarily associated with operating earnings related to our Canadian subsidiaries, partially offset by the recognition of a $4.6 million tax refund associated with the Worker, Homeownership and Business Assistance Act of 2009.

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Liquidity and Capital Resources

        Our cash requirements consist primarily of funding ongoing operations, including inventory requirements, capital expenditures for new stores, renovation of existing stores, upgrades to our information technology systems and distribution facilities, and debt service. Our cash requirements are funded through cash flows from operations and our revolving credit agreement with a syndicate of lenders led by Bank of America, N.A. We manage availability under the revolving credit agreement by monitoring the timing of merchandise purchases and vendor payments. At July 31, 2013, we had borrowing availability under the revolving credit agreement of approximately $242 million. The average vendor payment terms during the year ended July 31, 2013 and 2012 was approximately 56 days and 52 days, respectively. As of July 31, 2013, we had cash and cash equivalents totaling $17.1 million. We believe that our operating cash flows and available credit facility are sufficient to finance our cash requirements for at least the next twelve months.

        Net cash provided by operating activities was $50.4 million for the year ended July 31, 2013, an improvement of $87.3 million compared to the net cash used in operating activities of $36.9 million in the prior year. The improvement is primarily the result of the $38.0 million commencement payment received related to the signing of the ADS Agreement in July 2013, a $20.8 million reduction in cash paid for interest and financing fees as a result of the debt refinancing transactions completed in July 2012, an increase in operating earnings and the timing of vendor payments. The improvement was partially offset by an increase in inventory.

        The Company had total outstanding debt of $410.1 million as of July 31, 2013, a decrease of $42.9 million compared to $452.9 million as of July 31, 2012. The decrease is primarily related to the $38.0 million commencement payment received associated with the signing of the Private Label Credit Card Program agreement with ADS in July 2013.

        Our business is highly seasonal, with a disproportionate amount of sales (approximately 30 percent) occurring in the Holiday season, which encompasses November and December of each year. Other important selling periods include Valentine's Day and Mother's Day. We purchase inventory in anticipation of these periods and, as a result, have higher inventory and inventory financing needs immediately prior to these periods. Inventory owned at July 31, 2013 was $767.5 million, an increase of $25.8 million compared to July 31, 2012. The increase is primarily due to the expansion of our bridal and exclusive, branded merchandise collections into additional stores and higher merchandise cost, partially offset by the impact of 84 store closures since July 31, 2012 (net of store openings).

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 range from 69 to 72 percent for the period of August through September 2013, 81 to 83 percent for the period of October through December 2013 and 68 to 73 percent for the period of January through July 2014.

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        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.

        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 will replace the one-month LIBOR with the fixed interest rates shown in the table below and will be settled monthly. The swaps qualify as cash flow hedges and, to the extent effective, changes in their fair values will be recorded in accumulated other comprehensive income in the consolidated balance sheet.

        Interest rate swaps executed in September 2013 are as follows:

Period	Notional Amount (in thousands)		Fixed Interest Rate
October 2013 - July 2014	$	215,000		0.29	%
August 2014 - July 2016	$	215,000		1.19	%

        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 $242 million as of July 31, 2013, which exceeded the excess availability requirement by $185 million. The fixed charge coverage ratio was 2.72 as of July 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 July 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.

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 July 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

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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 July 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. We also incurred a $3.0 million prepayment premium related to the $60.5 million prepayment on the prior term loan. The $3.0 million prepayment premium was recorded in interest expense during the fourth quarter of fiscal year 2012.

        In fiscal year 2011, we recorded a charge to interest expense totaling $45.8 million as a result of an amendment to the prior term loan on September 24, 2010. In accordance with ASC 470-50, Debt–Modifications and Extinguishments, the amendment was considered a significant modification which required us to account for the prior term loan and related unamortized costs as an extinguishment and record the loan at fair value. The charge consisted of $20.3 million related to the unamortized discount associated with the warrants (see below) issued in connection with the prior term loan, a $12.5 million amendment fee, $10.3 million related to unamortized debt issue costs and $2.7 million related to a prepayment premium and other costs.

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. Under the terms of the Warrant Agreement, we issued 6.4 million A-Warrants and 4.7 million B-Warrants (collectively, 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 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 A-Warrants were exercisable immediately; however, the B-Warrants were not exercisable until the shares of common stock to be issued upon exercise of the B-Warrants were approved by our stockholders, which occurred on July 23, 2010. 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 for resale all or part of the common stock issuable under the Warrant Agreement.

        The fair value of the Warrants totaled $21.3 million as of the date of issuance and was recorded as a long-term liability, with a corresponding discount to the carrying value of the prior term loan. On July 23, 2010, the stockholders approved the shares of common stock to be issued upon exercise of the B-Warrants. The long-term liability associated with the Warrants was marked-to-market as of the date of the stockholder approval resulting in an $8.3 million gain during the fourth quarter of fiscal year 2010. The remaining amount of $13.0 million was reclassified to stockholders' investment and is included in additional paid-in capital in the accompanying consolidated balance sheet. The remaining unamortized

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discount totaling $20.3 million associated with the Warrants was charged to interest expense as a result of an amendment to the prior term loan on September 24, 2010.

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 July 31, 2013 and 2012 totaled $2.9 million and $3.1 million, respectively.

Customer Credit Programs

        We have a Merchant Services Agreement ("MSA") with Citibank, under which Citibank provides financing for our U.S. guests to purchase merchandise through private label credit cards. The MSA can be terminated by either party upon certain breaches by the other party and also can be terminated by Citibank if our net credit card sales during any twelve-month period are less than $315 million or if net card sales during a twelve-month period decrease by 20 percent or more from the prior twelve-month period. After any termination, we may purchase or be obligated to purchase the credit card portfolio upon termination with Citibank as a result of insolvency, material breaches of the MSA or violations of applicable law related to the credit card program. As of July 31, 2013, we were in compliance with all covenants under the MSA. We have exceeded the $315 million threshold for the program year ending September 30, 2013. The MSA expires in October 2015 and will automatically renew for successive two-year periods, unless either party notifies the other in writing of its intent not to renew. In July 2013, the Company provided written notice to Citibank of its intent not to renew the agreement. During fiscal year 2013 and 2012, our guests used our private label credit card to pay for approximately 32 percent and 33 percent, respectively, of purchases in the U.S.

        On July 9, 2013, we entered into a Private Label Credit Card Program Agreement (the "ADS Agreement") with an affiliate of Alliance Data Systems Corporation ("ADS") to provide financing to our U.S. guests to purchase merchandise through private label credit cards beginning no later than October 1, 2015. In addition, ADS will provide marketing, analytical and technical services and has the option to participate in certain special financing programs prior to the commencement of the agreement. The ADS Agreement will replace our current agreement with Citibank which expires on October 1, 2015. The ADS Agreement has an initial term of the later of the seventh anniversary of the commencement date of the agreement or October 1, 2022 and automatically renews for successive two-year periods, unless either party notifies the other of its intent not to renew. If ADS meets certain performance criteria during the first three years of the agreement, they will have the option to extend the initial term of the ADS Agreement by two years. In July 2013, we received a $38.0 million commencement payment upon signing the ADS Agreement. The commencement payment will be amortized over the initial term of the ADS Agreement as a reduction of merchant fees beginning on the commencement date of the agreement. The ADS agreement can be terminated by either party upon certain breaches by the other party.

        We have a Private Label Credit Card Program Agreement (the "TD Agreement") with TD Financing Services Inc. ("TDFS") under which TDFS provides financing for our Canadian guests to purchase merchandise through private label credit cards. In addition, TDFS provides credit insurance for our guests and will receive 40 percent of the net profits, as defined, and the remaining 60 percent is paid to us. The TD Agreement expires in May 2015 and will automatically renew for successive one-year periods, unless either party notifies the other in writing of its intent not to renew. The agreement may be terminated at any time during the 90-day period following the end of a program year in the event that credit sales are less than $50 million in the immediately preceding year. We have exceeded the $50 million threshold for the program year ending June 30, 2013. During fiscal year 2013 and 2012, our guests used our private label credit card to pay for approximately 18 percent and 19 percent, respectively, of purchases in Canada.

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        We also enter into agreements with certain other lenders to offer alternative financing options to our U.S. guests who have been declined by Citibank. During fiscal year 2013, we expanded our alternate credit program by entering into an agreement with Genesis Financial Solutions, Inc. to provide additional financing options to our U.S. guests.

Capital Expenditures

        During fiscal year 2013, we invested $17.0 million to remodel, relocate and refurbish stores and to complete store enhancement projects. We also invested $6.0 million in infrastructure, primarily related to information technology. We anticipate investing between $40 million and $45 million in capital expenditures in fiscal year 2014. The increase in capital expenditures compared to the $23 million spent in fiscal year 2013 is primarily the result of new store openings, refurbishment of existing stores, upgrades to our point-of-sale hardware and software and improved connectivity in our stores.

Contractual Obligations

        Aggregate information about our contractual obligations as of July 31, 2013 is presented in the following table (in thousands):

	Payments Due by Period
	Total		2014		2015-2016		2017-2018		Thereafter		Other
Long-term debt (excluding capital leases)	$	407,200	$	—	$	—	$	407,200	$	—	$	—
Interest on Amended Term Loan(a)		35,029		8,800		17,600		8,629		—		—
Capital lease obligations		2,850		1,090		1,714		46		—		—
Operating leases(b)		715,800		173,782		253,506		147,706		140,806		—
Operations services agreement(c)		21,477		7,251		14,226		—		—		—
Other long-term liabilities(d)		5,592		—		—		—		—		5,592
Total	$	1,187,948	$	190,923	$	287,046	$	563,581	$	140,806	$	5,592

(a)

The Amended Term Loan requires fixed quarterly interest payments at 11 percent per annum on the outstanding principal balance. This amount does not reflect any interest related to the Amended Credit Agreement, which would be based on the current applicable rate and assumes no prepayments. The effective interest rate of the Amended Credit Agreement was 2.3 percent as of July 31, 2013. In fiscal year 2013, we paid $10.6 million of interest related to our revolving credit agreement.

(b)

Operating lease obligations relate to minimum base rental payments due under store lease agreements. Excluded from our operating lease commitments are amounts related to real estate taxes, insurance, common area maintenance fees and merchant association dues. Such amounts were approximately 22 percent of base rentals for the year ended July 31, 2013.

(c)

The operations services agreement is with a third party for the management of our client server systems, local area network operations, wide area network management and technical support.

(d)

Other long-term liabilities reflect loss reserves related to credit insurance services provided by our insurance subsidiaries. We have reflected these payments under "Other," as the timing of these future payments is dependent on the actual processing of the claims.

        Not included in the table above are our obligations under employment agreements and ordinary course purchase orders for merchandise, including certain merchandise on consignment.

Recent Accounting Pronouncement

        In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). The new guidance does not change the current requirements for reporting net income or other comprehensive

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income, but it does require disclosure of amounts reclassified out of accumulated other comprehensive income by component, as well as require the presentation of these amounts on the face of the statements of comprehensive income or in the notes to the consolidated financial statements. ASU 2013-02 will be effective for the annual reporting periods beginning after December 15, 2012. We do not expect a material impact from the adoption of this guidance on our consolidated financial statements.

        In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"), which requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. To the extent the tax benefit is not available at the reporting date under the governing tax law or if the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and not combined with deferred tax assets. ASU 2013-11 is effective for annual periods, and interim periods within those years, beginning after December 15, 2013. The amendments are to be applied to all unrecognized tax benefits that exist as of the effective date and may be applied retrospectively to each prior reporting period presented. We do not expect a material impact from the adoption of this guidance on our consolidated financial statements.

Off-Balance Sheet Arrangements

        We have no material off-balance sheet arrangements as of July 31, 2013.

Critical Accounting Policies and Estimates

        Our significant accounting policies are disclosed in Note 1 of our consolidated financial statements. The following discussion addresses our most critical accounting policies, which are those that are both important to the portrayal of our financial condition/results of operations and that require significant judgment or use of complex estimates.

        Merchandise Inventories.    Merchandise inventories are stated at the lower of cost or market. Substantially all U.S. inventories represent finished goods which are valued using the LIFO retail inventory method. Merchandise inventory of our Canadian brands, Peoples and Mappins, is valued using the retail inventory method. Under the retail method, inventory is segregated into categories of merchandise with similar characteristics at its current average retail selling value. The determination of inventory cost and the resulting gross margins are calculated by applying an average cost-to-retail ratio to the retail value of inventory. At the end of fiscal year 2013, approximately 16 percent of our total inventory represented raw materials and finished goods in our distribution centers. The inventory related to our manufacturing program and distribution center is valued at the weighted-average cost of those items.

        We are required to determine the LIFO cost on an interim basis by estimating annual inflation trends, annual purchases and ending inventory levels for the fiscal year. Actual annual inflation rates and inventory balances as of the end of any fiscal year may differ from interim estimates. We apply internally developed indices that we believe accurately and consistently measure inflation or deflation in the components of our merchandise (i.e., the proper weighting of diamonds, gold and other metals and precious stones) and our overall merchandise mix. We believe our internally developed indices more accurately reflect inflation or deflation in our own prices than the U.S. Bureau of Labor Statistics producer price indices or other published indices.

        We also write-down the carrying value of our inventory for discontinued, slow-moving and damaged inventory. This write-down is equal to the difference between the cost of inventory and its estimated market value based upon assumptions of targeted inventory turn rates, future demand, management strategy and market conditions. If actual market conditions are less favorable than those projected by management or management strategy changes, additional inventory write-downs may be required and, in

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the case of a major change in strategy or downturn in market conditions, such write-downs could be significant.

        Shrinkage is estimated for the period from the last inventory date to the end of the fiscal year on a store-by-store basis. Such estimates are based on experience and the shrinkage results from the last physical inventory. Physical inventories are taken at least once annually for all store locations and the distribution centers. The shrinkage rate from the most recent physical inventory, in combination with historical experience, could impact our shrinkage reserve.

        Impairment of Long-Lived Assets.    Long-lived assets are reviewed for impairment by comparing the carrying value of the assets with their estimated undiscounted future cash flows. If the evaluation indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow method, using a discount rate that is commensurate with the risk inherent in our current business model. Assumptions are made with respect to cash flows expected to be generated by the related assets based upon the most recent projections. Any changes in key assumptions, particularly store performance or market conditions, could result in an unanticipated impairment charge. For instance, in the event of a major market downturn or adverse developments within a particular market or portion of our business, individual stores may become unprofitable, which could result in a write-down of the carrying value of the assets in those stores.

        Goodwill.    In accordance with ASC 350, Intangibles–Goodwill and Other, we test goodwill for impairment annually, at the end of our second quarter, or more frequently if events occur which indicate a potential reduction in the fair value of a reporting unit's net assets below its carrying value. We calculate estimated fair value using the present value of future cash flows expected to be generated using a weighted-average cost of capital, terminal values and updated financial projections. As of the date of the most recent test, the fair value of the Peoples and Piercing Pagoda reporting units would have to decline by more than 20 percent and 59 percent, respectively, to be considered for impairment. If our actual results are not consistent with estimates and assumptions used to calculate fair value, we may be required to recognize a goodwill impairment.

        Revenue Recognition.    We recognize revenue in accordance with ASC 605, Revenue Recognition. Revenue related to merchandise sales, which is approximately 90 percent of total revenues, is recognized at the time of sale, reduced by a provision for sales returns. The provision for sales returns is based on historical rates of return. Repair revenues are recognized when the service is complete and the merchandise is delivered to the guest. Premium revenues from our insurance businesses relate to credit insurance policies sold to guests who purchase our merchandise under the customer credit programs. Insurance premiums are recognized over the coverage period.

        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. ASC 605-20, Revenue Recognition–Services, requires recognition of warranty revenue on a straight-line basis until sufficient cost history exists. Once sufficient cost history is obtained, revenue is required to be recognized in proportion to when costs are expected to be incurred. Prior to fiscal year 2012, the Company recognized revenue from lifetime warranties on a straight-line basis over a five-year period because sufficient evidence of the pattern of costs incurred was not available. During the first quarter of fiscal year 2012, we began recognizing revenue related to lifetime warranty sales in proportion to when the expected costs will be incurred, which we estimate will 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. The deferred revenue balance as of July 31, 2011 related to lifetime warranties is being recognized prospectively, in proportion to the remaining estimated warranty costs. The change in estimate related to the pattern of revenue recognition and the life of the warranties was the result of accumulating additional historical evidence over the five-year period that we have been selling the lifetime warranties. The change in estimate increased revenues by $34.9 million and decreased our net loss by $32.4 million

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during fiscal year 2012. As a result, basic and diluted net loss per share improved by $1.00 per share during fiscal year 2012.

        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.

        Self-Insurance.    We are self-insured for certain losses related to property insurance, general liability, workers' compensation and medical claims. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet dates. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity or frequency of claims, medical cost inflation, or fluctuations in premiums differ from our estimates, our results of operations could be impacted.

        Income Taxes.    Income taxes are estimated for each jurisdiction in which we operate. This involves assessing the current tax exposure together with temporary differences resulting from differing treatment of items for tax and financial statement accounting purposes. Any resulting deferred tax assets are evaluated for recoverability based on estimated future taxable income. To the extent that recovery is deemed not likely, a valuation allowance is recorded.

        Other Reserves.    We are involved in a number of legal and governmental proceedings as part of the normal course of business. Reserves are established based on management's best estimates of our potential liability in these matters. These estimates have been developed in consultation with in-house and outside counsel and are based on a combination of litigation and settlement strategies. In addition, from time to time we close stores prior to the expiration of the lease term. We record reserves associated with such leases 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. If our estimates and assumptions used to record these charges change, we may be required to record additional charges.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Inflation Risk.    Substantially all U.S. inventories represent finished goods, which are valued using the LIFO retail inventory method. We are required to determine the LIFO cost on an interim basis by estimating annual inflation trends, annual purchases and ending inventory. The inflation rates pertaining to merchandise inventories, especially as they relate to diamond, gold and silver costs, are primary components in determining our LIFO inventory. We have recorded LIFO charges in cost of sales totaling approximately $4.6 million, $22.4 million and $17.0 million during the fiscal years ended July 31, 2013, 2012 and 2011, respectively. The LIFO inventory reserve included in the consolidated balance sheets as of July 31, 2013 and 2012 totaled $63.0 million and $58.3 million, respectively.

        Foreign Currency Risk.    We are not subject to significant gains or losses as a result of currency fluctuations because most of our purchases are U.S. dollar-denominated. However, we enter into foreign currency contracts to manage the currency fluctuations associated with purchases for our Canadian operations. The gains or losses related to the settlement of foreign currency contracts are included in SG&A in our consolidated statements of operations. There were no material gains or losses recognized during the periods presented and there were no outstanding foreign currency contracts as of July 31, 2013.

        We are exposed to foreign currency exchange risks through our business operations in Canada, which may adversely affect our results of operations. During the fiscal year ended July 31, 2013 and 2011, the average Canadian currency rate appreciated by less than one percent and approximately six percent, respectively, relative to the U.S. dollar. During the fiscal year ended July 31, 2012, the average Canadian

39

currency rate depreciated by approximately one percent relative to the U.S. dollar. The changes in the Canadian currency rates did not have a material impact on the Company's net earnings (loss) during the fiscal years ended July 31, 2013, 2012 and 2011. As a result of fluctuations in the Canadian dollar, we recorded losses totaling $0.7 million and $1.7 million and a gain totaling $1.4 million during the fiscal years ended July 31, 2013, 2012 and 2011, respectively, primarily associated with the settlement of Canadian accounts payable.

        Interest Rate Risk.    Our Amended Term Loan bears interest at a fixed rate of 11 percent and would not be affected by interest rate changes. As of July 31, 2013, we had borrowings of $327.2 million under our Amended Credit Agreement that are subject to variable interest rates.

        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 will replace the one-month LIBOR with the fixed interest rates shown in the table below and will be settled monthly. The swaps qualify as cash flow hedges and, to the extent effective, changes in their fair values will be recorded in accumulated other comprehensive income in the consolidated balance sheet.

        Interest rate swaps executed in September 2013 are as follows:

Period	Notional Amount (in thousands)		Fixed Interest Rate
October 2013 - July 2014	$	215,000		0.29	%
August 2014 - July 2016	$	215,000		1.19	%

        Investment Risk.    We do not use derivative financial instruments for trading or other speculative purposes and are not party to any leveraged financial instruments. The investments of our insurance subsidiaries, primarily stocks and bonds, had a market value of $20.6 million at July 31, 2013.

        Commodity Risk.    Our results are subject to fluctuations in the underlying cost of diamonds, gold, silver and other metals which are key raw material components of the products sold by us. We address commodity risk principally through retail price point adjustments.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        We refer you to the Index to Consolidated Financial Statements attached hereto on page 47 for a listing of all financial statements. The consolidated financial statements are included on pages F-1 through F-31. We incorporate these consolidated financial statements in this document by reference.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable.

ITEM 9A.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective in enabling us to record, process, summarize and report information required to be included in the Company's periodic SEC filings within the required time period, and that such

40

information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

        Our Management's Report on Internal Control Over Financial Reporting is included on page F-1 of this Annual Report on Form 10-K. The report of Ernst & Young LLP, our independent registered public accounting firm, regarding the effectiveness of our internal control over financial reporting is included on page F-3 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

        There have been no changes in our internal controls over financial reporting during the quarter ended July 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

        Not applicable.

41

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

        The information set forth under the headings "Proposal No. 1: Election of Directors," "Corporate Governance," "Related Party Transactions," and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

        The information set forth under the headings "Compensation Discussion and Analysis," "Compensation Committee Report," "Executive Compensation," "Compensation Committee Interlocks and Insider Participation," "Director Compensation" and "Other Corporate Governance Policies—Risk Management Related to Compensation Policies and Practices" in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information set forth under the headings "Outstanding Voting Securities of the Company and Principal Holders Thereof" and "Equity Compensation Plan Information" in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        The information set forth under the headings "Independence of Board of Directors" and "Related Party Transactions" in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information set forth under the heading "Independent Registered Public Accounting Firm" in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders is incorporated herein by reference.

42

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

        The following documents are filed as part of this report.

1.

Financial Statements

        We make reference to the Index to Consolidated Financial Statements attached to this document on page 47 for a listing of all financial statement documents included on pages F-1 through F-31.

2.

Financial Statement Schedules

        All other financial statements and financial statement schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions, are not material or are not applicable and, therefore, have been omitted or are included in the consolidated financial statements or notes thereto.

3.

Exhibits

        Each management contract or compensation plan required to be filed as an exhibit is identified by an asterisk (*).

Exhibit Number		Description of Exhibit	The filings referenced for incorporation by reference are Zale Corporation filings (File No. 1-04129) unless otherwise noted
	3.1a	Restated Certificate of Incorporation of Zale Corporation	October 31, 2001 Form 10-Q, Exhibit 3.1
	3.1b	Certificate of Amendment to Restated Certificate of Incorporation of Zale Corporation	October 31, 2004 Form 10-Q, Exhibit 3.1
	3.2	Bylaws of Zale Corporation	June 20, 2008 Form 8-K, Exhibit 3.1
	4.1	Second Amended and Restated Credit Agreement, dated as of July 24, 2012	July 27, 2012 Form 8-K, Exhibit 10.1
	4.2	Amended and Restated Credit Agreement, dated as of July 24, 2012	July 27, 2012 Form 8-K, Exhibit 10.2
	4.3	Warrant and Registration Rights Agreement, dated as of May 10, 2010	April 30, 2010 Form 10-Q, Exhibit 10.7
	4.4	Amended and Restated Intercreditor Agreement, dated as of September 24, 2012	July 31, 2012 Form 10-K, Exhibit 4.4
	10.1*	Zale Corporation Savings and Investment Plan, as amended	July 31, 2006 Form 10-K, Exhibit 10.1
	10.2*	Form of Indemnification Agreement	July 31, 2009 Form 10-K, Exhibit 10.2
	10.3a*	Zale Corporation 2003 Stock Incentive Plan, as amended	July 31, 2006 Form 10-K, Exhibit 10.4a
	10.3b*	Form of Incentive Stock Option Award Agreement	July 31, 2008 Form 10-K, Exhibit 10.4b

43

Exhibit Number		Description of Exhibit	The filings referenced for incorporation by reference are Zale Corporation filings (File No. 1-04129) unless otherwise noted
	10.3c*	Form of Non-qualified Stock Option Award Agreement	July 31, 2008 Form 10-K, Exhibit 10.4c
	10.3d*	Form of Time-Vesting Restricted Stock Unit Award Agreement	July 31, 2008 Form 10-K, Exhibit 10.4e
	10.4a*	Zale Corporation 2011 Omnibus Incentive Plan, as amended	October 19, 2012 Definitive Proxy Statement on Schedule 14A, Appendix A
	10.4b*	Form of Stock Option Award Agreement	July 31, 2012 Form 10-K, Exhibit 10.5b
	10.4c*	Form of Time-Vesting Restricted Stock Unit Award Agreement	July 31, 2012 Form 10-K, Exhibit 10.5c
	10.4d*	Form of Performance-Based Restricted Stock Unit Award Agreement	July 31, 2012 Form 10-K, Exhibit 10.5d
	10.4e*	Form of Restricted Stock Agreement for directors	May 22, 2013 Form 8-K, Exhibit 10.1
	10.5*	Outside Directors' 1995 Stock Option Plan	July 31, 2001 Form 10-K, Exhibit 10.3c
	10.6a*	Non-Employee Director Equity Compensation Plan	November 24, 2008 Form 8-K, Exhibit 10.1
	10.6b*	Amendment to Zale Corporation Non-Employee Director Equity Compensation Plan	December 24, 2009 Form 8-K, Exhibit 10.1
	10.6c*	Form of Stock Option Award Agreement	November 17, 2005 Form 8-K, Exhibit 10.2
	10.6d*	Form of Restricted Stock Award Agreement	November 17, 2005 Form 8-K, Exhibit 10.3
	10.6e*	Form of Restricted Stock Unit Agreement	November 24, 2008 Form 8-K, Exhibit 10.2
	10.6f*	Form of Deferred Stock Unit Agreement	November 24, 2008 Form 8-K, Exhibit 10.3
	10.7*	Form of Amended and Restated Employment Security Agreement	December 24, 2008 Form 8-K, Exhibit 10.2
	10.8*	Offer Letter to Theo Killion	July 31, 2010 Form 10-K, Exhibit 10.10b
	10.9*	Employment Security Agreement with Matthew W. Appel	April 30, 2009 Form 10-Q, Exhibit 10.2
	10.10*	Offer Letter to Richard Lennox	July 31, 2010 Form 10-K, Exhibit 10.12
	10.11*	Base Salaries and Target Bonus for the Named Executive Officers for Fiscal Year 2013	Filed herewith
	10.12*	Zale Corporation Bonus Plan	July 31, 2008 Form 10-K, Exhibit 10.8
	10.13a	Lease Agreement for Corporate Headquarters	July 31, 1996 Form 10-K, Exhibit 10.11
	10.13b	First Amendment to Lease Agreement for Corporate Headquarters	July 31, 1996 Form 10-K, Exhibit 10.11a

44

Exhibit Number		Description of Exhibit	The filings referenced for incorporation by reference are Zale Corporation filings (File No. 1-04129) unless otherwise noted
	10.13c	Second Amendment to Lease Agreement for Corporate Headquarters	July 31, 2004 Form 10-K, Exhibit 10.7c
	10.14	Master Agreement for Information Technology Services between Zale Delaware, Inc. and ACS Commercial Solutions, Inc., dated as of August 1, 2005	July 31, 2005 Form 10-K, Exhibit 10.18
	10.15	Private Label Credit Card Program Agreement	May 12, 2010 Form 8-K, Exhibit 10.1
	10.16	Amended and Restated Merchant Services Agreement with Citibank (South Dakota), N.A.	October 31, 2010 Form 10-Q, Exhibit 10.1
	10.17*	Offer Letter to Thomas A. Haubenstricker	October 12, 2011 Form 8-K, Exhibit 10.1
	10.18*	Private Label Credit Card Program Agreement with Alliance Data Systems Corporation (the Company requested confidential treatment for certain portions of this document pursuant to an application for confidential treatment sent to the SEC. The Company omitted such portions from this filing and filed them separately with the SEC).	Filed herewith
	14	Code of Business Conduct and Ethics	July 31, 2012 Form 10-K, Exhibit 14
	21	Subsidiaries of the Registrant	July 31, 2012 Form 10-K, Exhibit 21
	23.1	Consent of Ernst & Young LLP	Filed herewith
	31.1	Rule 13a-14(a) Certification of Chief Executive Officer	Filed herewith
	31.2	Rule 13a-14(a) Certification of Chief Administrative Officer	Filed herewith
	31.3	Rule 13a-14(a) Certification of Chief Financial Officer	Filed herewith
	32.1	Section 1350 Certification of Chief Executive Officer	Filed herewith
	32.2	Section 1350 Certification of Chief Administrative Officer	Filed herewith
	32.3	Section 1350 Certification of Chief Financial Officer	Filed herewith
	99.1	Audit Committee Charter	Filed herewith
	99.2	Compensation Committee Charter	Filed herewith
	99.3	Nominating/Corporate Governance Committee Charter	Filed herewith

45

Exhibit Number		Description of Exhibit	The filings referenced for incorporation by reference are Zale Corporation filings (File No. 1-04129) unless otherwise noted
	101.INS**	XBRL Instance Document	Filed herewith
	101.SCH**	XBRL Taxonomy Extension Schema	Filed herewith
	101.CAL**	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
	101.DEF**	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
	101.LAB**	XBRL Taxonomy Extension Label Linkbase	Filed herewith
	101.PRE**	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith

**

These exhibits are furnished herewith. In accordance with Rule 406T of Regulation S-T, these exhibits are not deemed to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

46

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Management's Report on Internal Control Over Financial Reporting	F-1
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Operations	F-4
Consolidated Statements of Comprehensive Income (Loss)	F-5
Consolidated Balance Sheets	F-6
Consolidated Statements of Cash Flows	F-7
Consolidated Statements of Stockholders' Investment	F-8
Notes to Consolidated Financial Statements	F-9

47

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of July 31, 2013. The effectiveness of our internal control over financial reporting was audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report on page F-3.

/s/ THEO KILLION
Theo Killion
Chief Executive Officer
September 27, 2013 /s/ THOMAS A. HAUBENSTRICKER
Thomas A. Haubenstricker
Chief Financial Officer
September 27, 2013

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Zale Corporation:

        We have audited the accompanying consolidated balance sheets of Zale Corporation and subsidiaries as of July 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders' investment, and cash flows for each of the three years in the period ended July 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Zale Corporation and subsidiaries at July 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 31, 2013, in conformity with U.S. generally accepted accounting principles.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Zale Corporation's internal control over financial reporting as of July 31, 2013, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated September 27, 2013 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP  

Dallas, Texas
September 27, 2013

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Zale Corporation:

        We have audited Zale Corporation's internal control over financial reporting as of July 31, 2013, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). Zale Corporation's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, Zale Corporation maintained, in all material respects, effective internal control over financial reporting as of July 31, 2013, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Zale Corporation and subsidiaries as of July 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders' investment, and cash flows for each of the three years in the period ended July 31, 2013 of Zale Corporation and subsidiaries and our report dated September 27, 2013 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP  

Dallas, Texas
September 27, 2013

F-3

ZALE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Year Ended July 31,
	2013			2012			2011
Revenues	$	1,888,016		$	1,866,878		$	1,742,563
Cost of sales		903,602			905,613			862,468
Gross margin		984,414			961,265			880,095
Selling, general and administrative		916,274			902,287			859,588
Depreciation and amortization		33,770			37,887			41,326
Other (gains) charges		(748	)		1,973			7,047
Operating earnings (loss)		35,118			19,118			(27,866	)
Interest expense		23,182			44,649			82,619
Earnings (loss) before income taxes		11,936			(25,531	)		(110,485	)
Income tax expense		1,924			1,365			1,557
Earnings (loss) from continuing operations		10,012			(26,896	)		(112,042	)
Loss from discontinued operations, net of taxes		—			(414	)		(264	)
Net earnings (loss)	$	10,012		$	(27,310	)	$	(112,306	)
Basic net earnings (loss) per common share:
Earnings (loss) from continuing operations	$	0.31		$	(0.84	)	$	(3.49	)
Loss from discontinued operations		—			(0.01	)		(0.01	)
Net earnings (loss) per share	$	0.31		$	(0.85	)	$	(3.50	)
Diluted net earnings (loss) per common share:
Earnings (loss) from continuing operations	$	0.24		$	(0.84	)	$	(3.49	)
Loss from discontinued operations		—			(0.01	)		(0.01	)
Net earnings (loss) per share	$	0.24		$	(0.85	)	$	(3.50	)
Weighted-average number of common shares outstanding:
Basic		32,429			32,196			32,129
Diluted		40,958			32,196			32,129

See notes to consolidated financial statements.

F-4

ZALE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Year Ended July 31,
	2013			2012			2011
Net earnings (loss)	$	10,012		$	(27,310	)	$	(112,306	)
Foreign currency translation adjustment		(5,685	)		(9,668	)		14,190
Reclassification of gain on sale of securities to earnings		(703	)		(242	)		(169	)
Unrealized gain on securities, net		34			628			924
Comprehensive income (loss)	$	3,658		$	(36,592	)	$	(97,361	)

See notes to consolidated financial statements.

F-5

ZALE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	July 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	17,060		$	24,603
Merchandise inventories		767,540			741,788
Other current assets		52,620			46,690
Total current assets		837,220			813,081
Property and equipment, net		108,875			122,124
Goodwill		98,372			100,544
Other assets		35,678			47,790
Deferred tax asset		107,110			96,929
Total assets	$	1,187,255		$	1,180,468
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities	$	220,558		$	205,082
Deferred revenue		82,110			85,714
Deferred tax liability		107,016			96,662
Total current liabilities		409,684			387,458
Long-term debt		410,050			452,908
Deferred revenue—long-term		109,135			122,802
Other liabilities		73,057			38,364
Commitments and contingencies
Stockholders' investment:
Common stock, par value $0.01, 150,000 shares authorized; 54,732 shares issued; 32,639 and 32,220 shares outstanding at July 31, 2013 and 2012, respectively		488			488
Additional paid-in capital		155,625			162,711
Accumulated other comprehensive income		47,015			53,369
Accumulated earnings		435,140			425,128
		638,268			641,696
Treasury stock, at cost, 22,093 and 22,512 shares at July 31, 2013 and 2012, respectively		(452,939	)		(462,760	)
Total stockholders' investment		185,329			178,936
Total liabilities and stockholders' investment	$	1,187,255		$	1,180,468

See notes to consolidated financial statements.

F-6

ZALE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended July 31,
	2013			2012			2011
Cash Flows From Operating Activities:
Net earnings (loss)	$	10,012		$	(27,310	)	$	(112,306	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Non-cash interest		2,870			3,603			34,580
Depreciation and amortization		33,770			37,887			41,326
Deferred taxes		1,165			1,544			5,280
Loss on disposition of property and equipment		1,308			1,793			1,431
Impairment of property and equipment		1,119			1,751			6,762
Stock-based compensation		3,285			2,728			2,150
Loss from discontinued operations		—			414			264
Changes in assets and liabilities:
Merchandise inventories		(29,575	)		(27,516	)		(8,071	)
Other current assets		(7,447	)		5,877			(5,772	)
Other assets		(140	)		142			(1,982	)
Accounts payable and accrued liabilities		15,944			(11,037	)		(19,577	)
Deferred revenue		(16,433	)		(22,064	)		10,418
Other liabilities		34,526			(4,673	)		(1,449	)
Net cash provided by (used in) operating activities		50,404			(36,861	)		(46,946	)
Cash Flows From Investing Activities:
Payments for property and equipment		(23,029	)		(19,775	)		(15,315	)
Purchase of available-for-sale investments		(4,181	)		(6,833	)		(9,388	)
Proceeds from sales of available-for-sale investments		12,892			8,517			6,140
Net cash used in investing activities		(14,318	)		(18,091	)		(18,563	)
Cash Flows From Financing Activities:
Borrowings under revolving credit agreement		5,071,300			4,891,400			3,604,800
Payments on revolving credit agreement		(5,113,900	)		(4,776,600	)		(3,514,800	)
Payments on senior secured term loan		—			(60,454	)		(11,250	)
Debt issuance costs		—			(7,990	)		—
Proceeds from exercise of stock options		147			34			67
Payments on capital lease obligations		(1,016	)		(527	)		—
Net cash (used in) provided by financing activities		(43,469	)		45,863			78,817
Cash Flows Used in Discontinued Operations:
Net cash used in operating activities of discontinued operations		—			(893	)		(5,391	)
Effect of exchange rate changes on cash		(160	)		(540	)		973
Net change in cash and cash equivalents		(7,543	)		(10,522	)		8,890
Cash and cash equivalents at beginning of period		24,603			35,125			26,235
Cash and cash equivalents at end of period	$	17,060		$	24,603		$	35,125

See notes to consolidated financial statements.

F-7

ZALE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT

(In thousands)

	Common Stock							Accumulated Other Comprehensive Income
					Additional Paid-In Capital						Accumulated Earnings			Treasury Stock
	Shares		Amount														Total
Balances at July 31, 2010		32,107	$	488	$	160,645		$	47,706		$	564,744		$	(465,563	)	$	308,020
Comprehensive loss		—		—		—			14,945			(112,306	)		—			(97,361	)
Net settlement of share-based awards		52		—		(1,220	)		—			—			1,238			18
Stock-based compensation		—		—		2,150			—			—			—			2,150
Balances at July 31, 2011		32,159		488		161,575			62,651			452,438			(464,325	)		212,827
Comprehensive loss		—		—		—			(9,282	)		(27,310	)		—			(36,592	)
Net settlement of share-based awards		61		—		(1,592	)		—			—			1,565			(27	)
Stock-based compensation		—		—		2,728			—			—			—			2,728
Balances at July 31, 2012		32,220		488		162,711			53,369			425,128			(462,760	)		178,936
Comprehensive income		—		—		—			(6,354	)		10,012			—			3,658
Net settlement of share-based awards		419		—		(10,371	)		—			—			9,821			(550	)
Stock-based compensation		—		—		3,285			—			—			—			3,285
Balances at July 31, 2013		32,639	$	488	$	155,625		$	47,015		$	435,140		$	(452,939	)	$	185,329

See notes to consolidated financial statements.

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ZALE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation.    References to the "Company," "we," "us," and "our" in this Form 10-K 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 July 31, 2013, we operated 1,064 specialty retail jewelry stores and 630 kiosks located mainly 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.

        Cash and Cash Equivalents.    Cash and cash equivalents include cash on hand, deposits in banks and short-term marketable securities at varying interest rates with original maturities of three months or less. Also included in cash equivalents are proceeds due from credit card transactions with settlement terms of less than five days. Under our credit card processing agreements, a portion of these proceeds are held back to serve as collateral for disputed charges. The credit card proceeds held back as of July 31, 2013 and 2012 were not material. The carrying amount of our cash equivalents approximates fair value due to the short-term maturity of those instruments.

        Merchandise Inventories.    Merchandise inventories are stated at the lower of cost or market. Substantially all U.S. inventories represent finished goods which are valued using the last-in, first-out ("LIFO") retail inventory method. Merchandise inventory of our Canadian brands, Peoples Jewellers and Mappins Jewellers, is valued using the retail inventory method. Under the retail method, inventory is segregated into categories of merchandise with similar characteristics at its current average retail selling value. The determination of inventory cost and the resulting gross margins are calculated by applying an average cost-to-retail ratio to the retail value of inventory. At the end of fiscal year 2013, approximately 16 percent of our total inventory represented raw materials and finished goods in our distribution centers. The inventory related to our manufacturing program and distribution center is valued at the

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weighted-average cost of those items. The LIFO charge was $4.6 million, $22.4 million and $17.0 million for the years ended July 31, 2013, 2012 and 2011, respectively. The cumulative LIFO provision reflected in the accompanying consolidated balance sheets was $63.0 million and $58.3 million at July 31, 2013 and 2012, respectively. Domestic inventories, excluding the cumulative LIFO provision, were $690.5 million and $664.1 million at July 31, 2013 and 2012, respectively. Our Canadian inventory totaled $140.0 million and $136.0 million at July 31, 2013 and 2012, respectively.

        Consignment inventory and the related contingent obligations are not reflected in our consolidated financial statements. Consignment inventory has historically consisted of test programs, merchandise at higher price points, or merchandise that otherwise does not warrant the risk of outright ownership. Consignment inventory can be returned to the vendor at any time. At the time consigned inventory is sold, we record the purchase liability in accounts payable and the related cost of merchandise in cost of sales. We had $149.1 million and $118.4 million of consignment inventory on hand at July 31, 2013 and 2012, respectively.

        We are required to determine the LIFO cost on an interim basis by estimating annual inflation trends, annual purchases and ending inventory levels for the fiscal year. Actual annual inflation rates and inventory balances as of the end of any fiscal year may differ from interim estimates. We apply internally developed indices that we believe accurately and consistently measure inflation or deflation in the components of our merchandise (i.e., the proper weighting of diamonds, gold and other metals and precious stones) and our overall merchandise mix. We believe our internally developed indices more accurately reflect inflation or deflation in our own prices than the U.S. Bureau of Labor Statistics producer price indices or other published indices.

        We also write-down the carrying value of our inventory for discontinued, slow-moving and damaged inventory. This write-down is equal to the difference between the cost of inventory and its estimated market value based upon assumptions of targeted inventory turn rates, future demand, management strategy and market conditions. If actual market conditions are less favorable than those projected by management or management strategy changes, additional inventory write-downs may be required and, in the case of a major change in strategy or downturn in market conditions, such write-downs could be significant.

        Shrinkage is estimated for the period from the last inventory date to the end of the fiscal year on a store-by-store basis. Such estimates are based on experience and the shrinkage results from the last physical inventory. Physical inventories are taken at least once annually for all store locations and the distribution centers. The shrinkage rate from the most recent physical inventory, in combination with historical experience, could impact our shrinkage reserve.

        Impairment of Long-Lived Assets.    Long-lived assets are reviewed for impairment by comparing the carrying value of the assets with their estimated undiscounted future cash flows. If the evaluation indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow method, using a discount rate that is commensurate with the risk inherent in our current business model. Assumptions are made with respect to cash flows expected to be generated by the related assets based upon the most recent projections. Any changes in key assumptions, particularly store performance or market conditions, could result in an unanticipated impairment charge. For instance, in the event of a major market downturn or adverse developments within a particular market or portion of our business, individual stores may become unprofitable, which could result in a write-down of the carrying value of the assets in those stores.

        Goodwill.    In accordance with Accounting Standards Codification ("ASC") 350, Intangibles–Goodwill and Other, we test goodwill for impairment annually, at the end of our second quarter, or more frequently if events occur which indicate a potential reduction in the fair value of a reporting unit's net assets below its carrying value. We calculate estimated fair value using the present value of future cash flows expected to be generated using a weighted-average cost of capital, terminal values and updated financial projections. If

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our actual results are not consistent with estimates and assumptions used to calculate fair value, we may be required to recognize a goodwill impairment. See Note 5 for additional disclosures related to goodwill.

        Revenue Recognition.    We recognize revenue in accordance with ASC 605, Revenue Recognition. Revenue related to merchandise sales, which is approximately 90 percent of total revenues, is recognized at the time of sale, reduced by a provision for sales returns. The provision for sales returns is based on historical rates of return. Repair revenues are recognized when the service is complete and the merchandise is delivered to the guests.

        Premium revenues from our insurance businesses relate to credit insurance policies sold to guests who purchase our merchandise under the customer credit programs. Insurance premium revenues from credit insurance subsidiaries were $10.9 million, $10.5 million and $10.0 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. These insurance premiums are recognized over the coverage period and included in revenues in the accompanying consolidated statements of operations.

        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. ASC 605-20, Revenue Recognition–Services ("ASC 605-20"), requires recognition of warranty revenue on a straight-line basis until sufficient cost history exists. Once sufficient cost history is obtained, revenue is required to be recognized in proportion to when costs are expected to be incurred. Prior to fiscal year 2012, the Company recognized revenue from lifetime warranties on a straight-line basis over a five-year period because sufficient evidence of the pattern of costs incurred was not available. During the first quarter of fiscal year 2012, we began recognizing revenue related to lifetime warranty sales in proportion to when the expected costs will be incurred, which we estimate will 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. The deferred revenue balance as of July 31, 2011 related to lifetime warranties is being recognized prospectively, in proportion to the remaining estimated warranty costs. The change in estimate related to the pattern of revenue recognition and the life of the warranties was the result of accumulating additional historical evidence over the five-year period that we have been selling the lifetime warranties.

        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.

        Gross Margin.    Gross margin represents net sales less cost of sales. Cost of sales includes cost related to merchandise sold, receiving and distribution, guest repairs and repairs associated with warranties.

        Selling, General and Administrative.    Included in selling, general and administrative ("SG&A") are store operating, advertising, merchandising, costs of insurance operations and general corporate overhead expenses.

        On July 9, 2013, we entered into a Private Label Credit Card Program Agreement (the "ADS Agreement") with an affiliate of Alliance Data Systems Corporation ("ADS") to provide financing to our U.S. guests to purchase merchandise through private label credit cards beginning no later than October 1, 2015. The ADS Agreement will replace our current agreement with Citibank which expires on October 1, 2015. In July 2013, we received a $38.0 million commencement payment upon signing the ADS Agreement. The commencement payment will be amortized over the initial term of the ADS Agreement as a reduction of merchant fees beginning on the commencement date of the agreement.

        Operating Leases.    Rent expense is recognized on a straight-line basis, including consideration of rent holidays, tenant improvement allowances received from the landlords and applicable rent escalations over

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the term of the lease. The commencement date of the rent expense is the earlier of the date when we become legally obligated for the rent payments or the date when we take possession of the building for construction purposes.

        Capital Leases.    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.

        Depreciation and Amortization.    Leasehold improvements are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets or remaining lease life, whichever is shorter, which generally range from 5 to 10 years. Fixtures and equipment are amortized using the straight-line method over the estimated useful lives of the assets, which range from 3 to 15 years. Original cost and related accumulated depreciation or amortization is removed from the accounts in the year assets are retired. Gains or losses on dispositions of property and equipment are recorded in the year of disposal and are included in SG&A in the accompanying consolidated statements of operations. Repairs and maintenance costs are expensed as incurred.

        Stock-Based Compensation.    Stock-based compensation is accounted for under ASC 718, Compensation–Stock Compensation, which requires the use of the fair value method of accounting for all stock-based compensation, including stock options. Share-based awards are recognized as compensation expense over the requisite service period.

        Stock Repurchase Program.    During fiscal year 2008, the Board of Directors authorized share repurchases of $350 million. As of July 31, 2013, $23.3 million was remaining under our stock repurchase program.

        Preferred Stock.    At July 31, 2013 and 2012, 5.0 million shares of preferred stock, par value of $0.01, were authorized. None were issued or outstanding.

        Self-Insurance.    We are self-insured for certain losses related to property insurance, general liability, workers' compensation and medical claims. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet dates. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity or frequency of claims, medical cost inflation, or fluctuations in premiums differ from our estimates, our results of operations could be impacted.

        Advertising Expenses.    Advertising is generally expensed when the advertisement is utilized and is a component of SG&A. Production costs are expensed upon the first occurrence of the advertisement. Advertising expenses were $83.6 million, $94.5 million and $76.5 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively, net of amounts contributed by vendors. Prepaid advertising at July 31, 2013 and 2012 totaled $4.9 million and $0.7 million, respectively, and is included in other current assets in the accompanying consolidated balance sheets.

        Vendor Allowances.    We receive cash or allowances from merchandise vendors primarily in connection with cooperative advertising programs and reimbursements for markdowns taken to sell the vendor's products. We have agreements in place with each vendor setting forth the specific conditions for each allowance or payment. The majority of these agreements are entered into or renewed annually at the beginning of each fiscal year. Qualifying vendor reimbursements of costs incurred to specifically advertise vendors' products are recorded as a reduction of advertising expense. All other allowances or cash payments received are recorded as a reduction to the cost of merchandise. Vendor allowances included in advertising expense totaled $1.9 million, $3.1 million and $1.0 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. Vendor allowances included in cost of sales totaled $10.1 million, $5.2 million and $3.7 million for the years ended July 31, 2013, 2012 and 2011, respectively.

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        Income Taxes.    Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the tax rate changes are enacted. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not such assets will be realized.

        We file income tax returns in the U.S. federal jurisdiction, in various states and in certain foreign jurisdictions. We are subject to U.S. federal examinations by tax authorities for fiscal years ending on or after July 31, 2009. We are subject to audit by taxing authorities of most states and certain foreign jurisdictions and are subject to examination by these taxing jurisdictions for fiscal years ending on or after July 31, 2008.

        Sales Tax.    We present revenues net of taxes collected and record the taxes as a liability in the consolidated balance sheets until the taxes are remitted to the appropriate taxing authority.

        Foreign Currency.    Translation adjustments result from translating foreign subsidiaries' financial statements into U.S. dollars. Balance sheet accounts are translated at exchange rates in effect at the balance sheet date. Income statement accounts are translated at average exchange rates during the period. Resulting translation adjustments are included in the accompanying consolidated statements of comprehensive income (loss).

        During the fiscal year ended July 31, 2013 and 2011, the average Canadian currency rate appreciated by less than one percent and approximately six percent, respectively, relative to the U.S. dollar. During the fiscal year ended July 31, 2012, the average Canadian currency rate depreciated by approximately one percent relative to the U.S. dollar. The changes in the Canadian currency rates did not have a material impact on the Company's net earnings (loss) during the fiscal years ended July 31, 2013, 2012 and 2011. As a result of fluctuations in the Canadian dollar, we recorded losses totaling $0.7 million and $1.7 million and a gain totaling $1.4 million during the fiscal years ended July 31, 2013, 2012 and 2011, respectively, primarily associated with the settlement of Canadian accounts payable.

        Discontinued Operations.    In connection with the sale of the Bailey, Banks & Biddle brand in November 2007 and subsequent bankruptcy filed by the buyer, Finlay Fine Jewelry Corporation, on August 5, 2009, we remain contingently liable for certain leases for the remainder of the respective lease terms. As of July 31, 2013, the lease reserve related to the one remaining lease totaled $0.6 million.

        Concentrations of Business and Credit Risk.    During both fiscal years 2013 and 2012, we purchased approximately 22 percent of our finished merchandise from five vendors (excluding finished merchandise produced by our internal manufacturing organization) with no single vendor exceeding ten percent. In fiscal years 2013 and 2012, approximately 13 percent and 16 percent, respectively, of our merchandise requirements were assembled by our internal manufacturing organization. If purchases from these top vendors were disrupted, particularly at certain critical times during the year, our sales could be adversely affected in the short term until alternative supply arrangements could be established. As of July 31, 2013 and 2012, we had no significant concentrations of credit risk.

        Use of Estimates.    Our accounting and financial reporting policies are in conformity with U.S. generally accepted accounting principles. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. For example, unexpected changes in market conditions or

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a downturn in the economy could adversely affect actual results. Estimates are used in accounting for, among other things, inventory valuation, goodwill and long-lived asset valuation, LIFO inventory retail method, legal liability, credit insurance liability, product warranty, depreciation, workers' compensation, taxes and contingencies. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

        Reclassification.    Certain prior year amounts have been reclassified in the accompanying consolidated balance sheets to conform to our fiscal year 2013 presentation.

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, 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 that are Measured at Fair Value on a Recurring Basis

        The following tables include our assets that are measured at fair value on a recurring basis (in thousands):

	Fair Value as of July 31, 2013
	Level 1		Level 2		Level 3
U.S. Treasury securities	$	14,436	$	—	$	—
U.S. government agency securities		—		2,687		—
Corporate bonds and notes		—		828		—
Corporate equity securities		2,669		—		—
	$	17,105	$	3,515	$	—

	Fair Value as of July 31, 2012
	Level 1		Level 2		Level 3
U.S. Treasury securities	$	21,109	$	—	$	—
U.S. government agency securities		—		2,920		—
Corporate bonds and notes		—		1,314		—
Corporate equity securities		3,993		—		—
	$	25,102	$	4,234	$	—

        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 7 for additional information related to our investments).

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Assets that are Measured at Fair Value on a Nonrecurring Basis

        Impairment losses related to store-level property and equipment 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 of 15.3 percent to 17.5 percent and positive comparable store sales growth assumptions, and therefore are classified as a Level 3 measurement in the fair value hierarchy. For the fiscal year ended July 31, 2013, store-level property and equipment of $1.2 million was written down to their fair value of $0.1 million, resulting in an impairment charge of $1.1 million. For the fiscal year ended July 31, 2012, store-level property and equipment of $2.2 million was written down to their fair value of $0.4 million, resulting in an impairment charge of $1.8 million.

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 July 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.

3. OTHER CURRENT ASSETS

        Other current assets consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Prepaid rent		$19,666		$19,738
Prepaid advertising		4,887		704
Tax receivables		8,104		9,711
Deferred tax asset		3,495		4,150
Other		16,468		12,387
		$52,620		$46,690

4. PROPERTY AND EQUIPMENT, NET

        Property and equipment consists of the following (in thousands):

	Year Ended July 31,
	2013			2012
Leasehold improvements	$	223,424		$	229,524
Furniture and fixtures		452,923			463,911
Construction in progress		5,555			3,050
		681,902			696,485
Less accumulated depreciation and amortization		(573,027	)		(574,361	)
	$	108,875		$	122,124

5. GOODWILL

        In accordance with ASC 350, Intangibles–Goodwill and Other, we test goodwill for impairment annually, at the end of our second quarter, or more frequently if events occur which indicate a potential reduction in the fair value of a reporting unit's net assets below its carrying value. We calculate estimated fair value using the present value of future cash flows expected to be generated using a weighted average cost of capital,

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terminal values and updated financial projections. At the end of the second quarter of fiscal year 2013, we completed our annual impairment testing of goodwill. Based on the test results, we concluded that no impairment was necessary for the $79.0 million of goodwill related to the Peoples Jewellers acquisition and the $19.4 million of goodwill related to the Piercing Pagoda acquisition. As of the date of the test, the fair value of the Peoples Jewellers and Piercing Pagoda reporting units would have to decline by more than 20 percent and 59 percent, respectively, to be considered for potential impairment. We calculated the estimated fair value of our reporting units using Level 3 inputs, including: (1) cash flow projections for five years assuming positive comparable store sales growth; (2) terminal year growth rates of two percent based on estimates of long-term inflation expectations; and (3) discount rates of 15.3 percent to 17.5 percent, respectively, based on a risk-adjusted weighted average cost of capital that reflects current market conditions. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a material change could occur. If our actual results are not consistent with estimates and assumptions used to calculate fair value, we may be required to recognize goodwill impairments.

        The changes in the carrying amount of goodwill are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Goodwill, beginning of period	$	100,544		$	104,620
Foreign currency adjustments		(2,172	)		(4,076	)
Goodwill, end of period	$	98,372		$	100,544

6. OTHER ASSETS

        Other assets consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Debt issuance costs		$11,488		$14,468
Investments in debt and equity securities		20,620		29,336
Other		3,570		3,986
		$35,678		$47,790

7. 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):

	Year Ended July 31, 2013				Year Ended July 31, 2012
	Cost		Fair Value		Cost		Fair Value
U.S. Treasury securities	$	13,501	$	14,436	$	19,423	$	21,109
U.S. government agency securities		2,543		2,687		2,673		2,920
Corporate bonds and notes		756		828		1,192		1,314
Corporate equity securities		1,942		2,669		3,501		3,993
	$	18,742	$	20,620	$	26,789	$	29,336

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        At July 31, 2013 and 2012, the carrying value of investments included a net unrealized gain of $1.9 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. The net realized gains totaled $0.7 million in fiscal year 2013 and $0.2 million in fiscal years 2012 and 2011. Investments with a carrying value of $7.4 million were on deposit with various state insurance departments at both July 31, 2013 and 2012, respectively, as required by law.

        Debt securities outstanding as of July 31, 2013 mature as follows (in thousands):

	Year Ended July 31,
	Cost		Fair Value
Less than one year		$  3,610		$  3,682
Year two through year five		9,178		10,017
Year six through year ten		3,944		4,174
After ten years		68		78
		$16,800		$17,951

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

        Accounts payable and accrued liabilities consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Accounts payable	$	135,650	$	133,071
Accrued payroll		20,379		12,734
Accrued taxes		16,716		15,166
Accrued and straight-line rent		11,955		11,904
Other		35,858		32,207
	$	220,558	$	205,082

9. LONG-TERM DEBT

        Long-term debt consists of the following (in thousands):

	Year Ended July 31,
	2013		2012
Revolving credit agreement	$	327,200	$	369,800
Senior secured term loan		80,000		80,000
Capital lease obligations		2,850		3,108
	$	410,050	$	452,908

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

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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 range from 69 to 72 percent for the period of August through September 2013, 81 to 83 percent for the period of October through December 2013 and 68 to 73 percent for the period of January through July 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.

        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 will replace the one-month LIBOR with the fixed interest rates shown in the table below and will be settled monthly. The swaps qualify as cash flow hedges and, to the extent effective, changes in their fair values will be recorded in accumulated other comprehensive income in the consolidated balance sheet.

        Interest rate swaps executed in September 2013 are as follows:

Period	Notional Amount (in thousands)		Fixed Interest Rate
October 2013 - July 2014	$	215,000		0.29	%
August 2014 - July 2016	$	215,000		1.19	%

        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 $242 million as of July 31, 2013, which exceeded the excess availability requirement by $185 million. The fixed charge coverage ratio was 2.72 as of July 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 July 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 paid under the revolving credit agreement during fiscal years 2013, 2012 and 2011 was $10.6 million, $14.3 million and $10.4 million, respectively.

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

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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 July 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 July 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. We also incurred a $3.0 million prepayment premium related to the $60.5 million prepayment on the prior term loan. The $3.0 million prepayment premium was recorded in interest expense during the fourth quarter of fiscal year 2012.

        In fiscal year 2011, we recorded a charge to interest expense totaling $45.8 million as a result of an amendment to the prior term loan on September 24, 2010. In accordance with ASC 470-50, Debt–Modifications and Extinguishments, the amendment was considered a significant modification which required us to account for the prior term loan and related unamortized costs as an extinguishment and record the loan at fair value. The charge consisted of $20.3 million related to the unamortized discount associated with the warrants (see below) issued in connection with the prior term loan, a $12.5 million amendment fee, $10.3 million related to unamortized debt issue costs and $2.7 million related to a prepayment premium and other costs.

        Interest paid under the term loan during fiscal years 2013, 2012 and 2011 was $8.9 million, $20.8 million and $21.7 million, respectively.

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. Under the terms of the Warrant Agreement, we issued 6.4 million A-Warrants and 4.7 million B-Warrants (collectively, 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 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 A-Warrants were exercisable immediately; however, the B-Warrants were not exercisable until the shares of common stock to be issued upon exercise of the B-Warrants were approved by our stockholders, which occurred on July 23, 2010. The number of shares and exercise price are subject

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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 for resale all or part of the common stock issuable under the Warrant Agreement.

        The fair value of the Warrants totaled $21.3 million as of the date of issuance and was recorded as a long-term liability, with a corresponding discount to the carrying value of the prior term loan. On July 23, 2010, the stockholders approved the shares of common stock to be issued upon exercise of the B-Warrants. The long-term liability associated with the Warrants was marked-to-market as of the date of the stockholder approval resulting in an $8.3 million gain during the fourth quarter of fiscal year 2010. The remaining amount of $13.0 million was reclassified to stockholders' investment and is included in additional paid-in capital in the accompanying consolidated balance sheet. The remaining unamortized discount totaling $20.3 million associated with the Warrants was charged to interest expense as a result of an amendment to the prior term loan on September 24, 2010.

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 July 31, 2013 and 2012 totaled $2.9 million and $3.1 million, respectively.

10. OTHER LIABILITIES

        Other liabilities consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Deferred income(a)	$	38,000	$	—
Long-term straight-line rent		23,467		27,110
Credit insurance reserves		5,592		5,527
Deferred tax liability		5,998		5,727
	$	73,057	$	38,364

(a)

Represents commencement payment received in July 2013 associated with the signing of the ADS Agreement (see Note 1).

11. OTHER (GAINS) CHARGES

        Other (gains) charges consist of the following (in thousands):

	Year Ended July 31,
	2013			2012		2011
Store impairments	$	1,119		$	1,751	$	6,762
Store closure adjustments		324			222		285
De Beers settlement		(2,191	)		—		—
	$	(748	)	$	1,973	$	7,047

        During fiscal years 2013, 2012 and 2011, we recorded charges related to the impairment of long-lived assets of underperforming stores totaling $1.1 million, $1.8 million and $6.8 million, respectively. The impairment of long-lived assets is based on the amount that the carrying value exceeds the estimated fair value of the assets. The fair value is based on future cash flow projections over the remaining lease term

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using a discount rate that we believe is commensurate with the risk inherent in our current business model. If actual results are not consistent with our cash flow projections, we may be required to record additional impairments. If operating earnings over the remaining lease term for each store included in our impairment test as of July 31, 2013 were to decline by 20 percent, we would be required to record additional impairments of $0.5 million.

        We have recorded lease termination charges related to certain store closures, primarily 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 July 31, 2013 and 2012.

        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 fiscal year 2013, we received proceeds totaling $2.2 million as a result of a settlement reached in the lawsuit.

12. LEASES

        We rent substantially all of our retail space under operating leases that generally range from 5 to 10 years and may contain minimum rent escalations, while kiosk leases generally range from 3 to 5 years. We also lease certain vehicles under capital leases for a term of four years. We recognize the minimum rent payments on a straight-line basis over the term of the lease, including the construction period. Contingent rentals paid to lessors of certain store facilities are determined principally on the basis of a percentage of sales in excess of levels contained in the respective leases. All existing real estate leases are operating leases. Rent expense from continuing operations is included in SG&A and is as follows (in thousands):

	Year Ended July 31,
	2013		2012		2011
Retail space:
Minimum rentals	$	183,266	$	184,239	$	188,766
Rentals based on sales		6,629		5,721		2,796
		189,895		189,960		191,562
Corporate headquarters		4,072		3,931		3,837
	$	193,967	$	193,891	$	195,399

        Future minimum lease payments as of July 31, 2013, for all non-cancelable leases were as follows (in thousands):

Fiscal Year Ended	Capital Leases			Operating Leases
2014		$1,184		$	173,782
2015		1,184			141,188
2016		590			112,318
2017		46			87,366
2018		—			60,340
Thereafter		—			140,806
		$3,004		$	715,800
Less imputed interest		(154	)
Capital lease obligation		$2,850

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13. INCOME TAXES

        Currently, we file a consolidated U.S. federal income tax return. The effective income tax rate from continuing operations varies from the federal statutory rate of 35 percent as follows (in thousands):

	Year Ended July 31,
	2013			2012			2011
Federal income tax expense (benefit) at statutory rate	$	4,177		$	(8,936	)	$	(38,750	)
State income taxes, net of federal benefit		858			(2,767	)		(4,250	)
Tax on repatriation of foreign earnings		3,954			5,950			14,099
Foreign tax rate changes and differential(a)		577			225			(1,274	)
Change in valuation allowance		(6,977	)		2,285			44,406
Depreciation and amortization adjustment(b)		—			—			(8,512	)
Other		(665	)		4,608			(4,162	)
Income tax expense	$	1,924		$	1,365		$	1,557
Effective income tax rate		16.1	%		(5.3	)%		(1.4	)%

(a)

For the past three years, Canada has reduced both its federal statutory and provincial tax rates. In fiscal year 2012, Puerto Rico reduced its federal statutory tax rate. Foreign tax rate differential represents the difference between the statutory tax rate in the U.S. and the statutory tax rates in Canada and Puerto Rico.

(b)

The $8.5 million adjustment in fiscal year 2011 was fully offset with a valuation allowance, resulting in no impact to the consolidated statement of operations.

        The provision for income taxes from continuing operations consists of the following (in thousands):

	Year Ended July 31,
	2013			2012			2011
Current income tax expense (benefit):
Federal		$   232		$	349			$(9,628	)
Foreign		1,131			664			5,003
State		(604	)		(1,206	)		910
Total current income tax expense (benefit)		759			(193	)		(3,715	)
Deferred income tax expense:
Federal		102			(166	)		5,114
Foreign		986			1,675			159
State		77			49			(1	)
Total deferred income tax expense		1,165			1,558			5,272
		$1,924		$	1,365			$  1,557

        Deferred tax assets and liabilities are determined based on the estimated future tax effects of the difference between the financial statement and tax basis of asset and liability balances using statutory tax

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rates. Tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at July 31, 2013 and 2012, respectively, are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Assets:
Accrued liabilities	$	78,754		$	84,515
Inventory reserves		7,220			7,083
Deferred income		14,033			—
Net operating loss carryforward		100,407			120,277
Stock-based compensation		7,067			7,160
Investments in subsidiaries		3,177			1,752
Foreign tax credits		13,978			12,609
Property and equipment		9,355			9,326
Other		2,854			5,986
Total deferred tax assets		236,845			248,708
Valuation allowances		(92,149	)		(98,995	)
Total deferred tax assets, net	$	144,696		$	149,713
Liabilities:
Merchandise inventories, principally due to LIFO reserve	$	(129,273	)	$	(119,256	)
Undistributed earnings		—			(13,973	)
Goodwill		(13,869	)		(13,941	)
Other		(3,963	)		(3,853	)
Total deferred tax liabilities		(147,105	)		(151,023	)
Deferred tax liabilities, net	$	(2,409	)	$	(1,310	)

        Deferred tax assets and liabilities in the accompanying consolidated balance sheets are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Other current assets	$	3,495		$	4,150
Deferred tax asset		107,110			96,929
Deferred tax liability		(107,016	)		(96,662	)
Other liabilities		(5,998	)		(5,727	)
Deferred tax liabilities, net	$	(2,409	)	$	(1,310	)

        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 July 31, 2013 and 2012, cumulative losses were incurred over the applicable three-year period.

        Our valuation allowances totaled $92.1 million and $99.0 million as of July 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.

F-23

        Deferred tax assets associated with foreign tax credits totaled $14.0 million and $12.6 million as of July 31, 2013 and 2012, respectively. The net operating loss carryforwards, including foreign tax credits, expire from fiscal year 2014 to fiscal year 2033. These carryforwards may be subject to limitations under Section 382 of the Internal Revenue Code if significant ownership changes occur in the future.

        In fiscal year 2011, we recorded income tax benefits totaling $4.6 million related to tax refunds associated with net operating loss carrybacks pursuant to the Worker, Homeownership and Business Assistance Act of 2009 (the "Business Assistance Act"). The Business Assistance Act was enacted in November 2009 and includes provisions that extend the time period in which net operating loss carrybacks can be utilized from two to five years, with certain limitations.

        Income tax refunds, net of taxes paid, during fiscal years 2013, 2012 and 2011 totaled $2.2 million, $0.8 million and $1.0 million, respectively.

Uncertain Tax Positions

        We operate in a number of tax jurisdictions and are subject to examination of our income tax returns by tax authorities in those jurisdictions who may challenge any item on these returns. Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain. In accordance with ASC 740, Income Taxes, we recognize the benefits of uncertain tax positions in our financial statements only after determining that it is more likely than not that the uncertain tax positions will be sustained.

        The total amount of unrecognized tax benefits as of July 31, 2013 was $3.5 million, of which $2.5 million would favorably impact the effective tax rate if resolved in our favor. Over the next twelve months, management does not anticipate that the amount of unrecognized tax benefits will be materially reduced due to our tax position being sustained upon audit or as a result of the expiration of the statute of limitations for specific jurisdictions.

        A reconciliation of the fiscal year 2013 beginning and ending balance of unrecognized tax benefits is as follows (in thousands):

	Unrecognized Tax Benefits
Balance at July 31, 2012	$	3,631
Additions based on tax positions related to prior years		555
Settlements with tax authorities		(341	)
Expiration of statute of limitations		(331	)
Balance at July 31, 2013	$	3,514

        We recognize accrued interest and penalties related to unrecognized tax benefits in our income tax expense. We had $1.5 million, $1.9 million and $2.6 million of interest and penalties accrued at July 31, 2013, 2012 and 2011, respectively. There was no material interest expense in fiscal years 2013, 2012 and 2011.

14. STOCK-BASED COMPENSATION

        We are authorized to provide grants of options to purchase our common stock, restricted stock, time-vested restricted stock units, performance-based restricted stock units and other awards under the 2011 Omnibus Incentive Plan, as amended ("2011 Incentive Plan"). The 2011 Incentive Plan replaced the Zale Corporation 2003 Stock Incentive Plan and the Non-Employee Director Equity Compensation Plan. We are authorized to issue up to 5.5 million shares of our common stock for stock options and restricted stock to employees and non-employee directors under the plans. As of July 31, 2013, we have 1.0 million shares available to be issued under the plans. Stock options and restricted share awards are issued from treasury stock. Stock-based compensation expense is included in SG&A in the consolidated statements of operations and totaled $3.3 million, $2.7 million and $2.2 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. The income tax benefit recognized in the consolidated statements of operations related to stock-based compensation totaled $1.2 million, $1.0 million and $0.1 million during fiscal years 2013, 2012 and 2011, respectively.

F-24

        Stock Options.    Stock options are granted at an exercise price equal to or greater than the market value of the shares of our common stock at the date of grant, generally vest ratably over a four-year period and generally expire ten years from the date of grant. Expense related to stock options is recognized using a graded-vesting schedule over the vesting period. As of July 31, 2013, there was $1.6 million of unrecognized compensation cost related to stock option awards that is expected to be recognized over a weighted-average period of 1.9 years.

        Stock option transactions during fiscal year 2013 are summarized as follows:

	Number of Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, beginning of year		3,624,907		$	10.31
Granted		10,500			5.15
Exercised		(65,325	)		2.30
Forfeited		(106,850	)		3.02
Expired		(255,949	)		23.49
Outstanding, end of year		3,207,283		$	9.65		6.07	$	13,801,439
Options exercisable, end of year		2,099,758		$	13.09		5.21	$	7,335,791

        For the year ended July 31, 2013, the total intrinsic value of stock options exercised was $0.3 million. The total intrinsic value of stock options exercised during fiscal years 2012 and 2011 was not material. The weighted-average fair values of option grants were $3.70, $2.51 and $1.38 during fiscal years 2013, 2012 and 2011, respectively. The fair value of stock options that vested during both fiscal years 2013 and 2012 totaled $1.6 million. The fair value of stock options that vested during fiscal year 2011 totaled $2.0 million.

        The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following table presents the weighted-average assumptions used in the option pricing model for stock option grants in fiscal years 2013, 2012 and 2011:

	2013			2012			2011
Expected volatility		107.0	%		101.4	%		93.5	%
Risk-free interest rate		0.5	%		0.7	%		1.0	%
Expected lives in years		4.0			4.0			4.0
Dividend yield		0.0	%		0.0	%		0.0	%

        Expected volatility and the expected life of the stock options are based on historical experience. The risk-free rate is based on a U.S. Treasury yield that has a life which approximates the expected life of the option.

        Restricted Share Awards.    Restricted share awards consist of restricted stock, restricted stock units and performance-based restricted stock units. Restricted stock and restricted stock units granted to employees through fiscal year 2007 generally vested on the third anniversary of the grant date and are subject to restrictions on sale or transfer. Restricted stock and restricted stock units granted to employees between fiscal year 2007 and fiscal year 2011 generally vest twenty-five percent on the second and third anniversary of the date of the grant and the remaining fifty percent vest on the fourth anniversary of the date of the grant, subject to restrictions on sale or transfer. Restricted stock and restricted stock units granted to employees after fiscal year 2011 vest ratably over a three-year vesting period. Restricted stock granted to non-employee directors vest on the first anniversary of the grant date or, if earlier, the date of the next annual stockholder meeting and are subject to restrictions on sale or transfer. The fair value of restricted

F-25

stock and restricted stock units is based on our closing stock price on the date of grant. Performance-based restricted stock units entitle the holder to receive a specified number of shares of our common stock based on our achievement of performance targets established by the Compensation Committee. There were 297,500 performance-based restricted stock units outstanding as of July 31, 2013 and 2012. At the sole discretion of the Compensation Committee, the holder of a restricted stock unit or performance-based restricted stock unit may receive a cash payment in lieu of a payout of shares of common stock equal to the fair market value of the number of shares of common stock the holder otherwise would have received. The total fair value of restricted share awards that vested during fiscal years 2013, 2012 and 2011, was $3.0 million, $0.2 million and $0.1 million, respectively. As of July 31, 2013, there was $3.3 million of unrecognized compensation cost related to restricted stock awards that is expected to be recognized over a weighted-average period of 1.7 years.

        Restricted share award transactions during fiscal year 2013 are summarized as follows:

	Number of Restricted Share Awards			Weighted- Average Fair Value Per Award
Restricted share awards, beginning of year		1,473,497		$	3.29
Granted		238,483			5.88
Vested		(446,982	)		3.49
Forfeited		(33,375	)		3.19
Restricted share awards, end of year		1,231,623		$	3.73

15. EARNINGS (LOSS) PER COMMON SHARE

        Basic earnings (loss) per common share is computed by dividing net earnings (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 using the treasury stock method.

        The following table presents a reconciliation of the diluted weighted average shares (in thousands):

	Year Ended July 31,
	2013		2012		2011
Basic weighted average shares		32,429		32,196		32,129
Effect of potential dilutive securities:
Warrants		7,189		—		—
Stock options and restricted share awards		1,340		—		—
Diluted weighted average shares		40,958		32,196		32,129

        The calculation of diluted weighted average shares excludes the impact of 1.2 million, 5.1 million and 3.0 million antidilutive stock options and restricted share awards for the years ended July 31, 2013, 2012 and 2011, respectively. The calculation of diluted weighted average shares also excludes the impact of 11.1 million antidilutive warrants for both the years ended July 31, 2012 and 2011.

        We incurred a net loss of $27.3 million and $112.3 million for the years ended July 31, 2012 and 2011, 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 those fiscal years.

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16. ACCUMULATED OTHER COMPREHENSIVE INCOME

        The following table includes detail regarding changes in the composition of accumulated other comprehensive income (in thousands):

	Cumulative Translation Adjustment			Unrealized Gain on Securities			Total Accumulated Other Comprehensive Income
Balance at July 31, 2010	$	46,300		$	1,406		$	47,706
Cumulative translation adjustment		14,190			—			14,190
Unrealized gain on securities		—			924			924
Reclassification to earnings		—			(169	)		(169	)
Balance at July 31, 2011		60,490			2,161			62,651
Cumulative translation adjustment		(9,668	)		—			(9,668	)
Unrealized gain on securities		—			628			628
Reclassification to earnings		—			(242	)		(242	)
Balance at July 31, 2012		50,822			2,547			53,369
Cumulative translation adjustment		(5,685	)		—			(5,685	)
Unrealized gain on securities		—			34			34
Reclassification to earnings		—			(703	)		(703	)
Balance at July 31, 2013	$	45,137		$	1,878		$	47,015

17. 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.

F-27

	Year Ended July 31,
Selected Financial Data by Segment	2013			2012			2011
	(amounts in thousands)
Revenues:
Fine Jewelry(a)	$	1,637,359		$	1,617,684		$	1,493,294
Kiosk		239,722			238,692			239,231
All Other		10,935			10,502			10,038
Total revenues	$	1,888,016		$	1,866,878		$	1,742,563
Depreciation and amortization:
Fine Jewelry	$	22,230		$	23,924		$	28,009
Kiosk		2,694			3,153			3,361
All Other		—			—			—
Unallocated		8,846			10,810			9,956
Total depreciation and amortization	$	33,770		$	37,887		$	41,326
Operating earnings (loss):
Fine Jewelry(b)	$	49,112		$	31,464		$	(15,875	)
Kiosk		15,915			14,850			15,270
All Other		5,226			5,091			5,184
Unallocated(c)		(35,135	)		(32,287	)		(32,445	)
Total operating earnings (loss)	$	35,118		$	19,118		$	(27,866	)
Assets(d):
Fine Jewelry(e)	$	852,308		$	821,427		$	807,771
Kiosk		73,975			85,828			85,999
All Other		27,725			38,110			40,406
Unallocated		233,247			235,103			254,582
Total assets	$	1,187,255		$	1,180,468		$	1,188,758
Capital expenditures:
Fine Jewelry	$	16,513		$	13,843		$	8,818
Kiosk		546			—			—
All Other		—			—			—
Unallocated		5,970			5,932			6,497
Total capital expenditures	$	23,029		$	19,775		$	15,315

(a)

Includes $316.9 million, $313.0 million and $298.1 million in fiscal years 2013, 2012 and 2011, respectively, related to foreign operations. In addition, fiscal year 2012 includes a $34.9 million adjustment as a result of a change in the revenue recognition related to lifetime warranties.

(b)

Includes $1.4 million, $2.0 million and $7.0 million in fiscal years 2013, 2012 and 2011, respectively, related to charges associated with store closures and store impairments. In addition, fiscal year 2012 includes $34.9 million of additional earnings as a result of a change in the revenue recognition related to lifetime warranties.

(c)

Includes credits of $63.4 million, $58.9 million and $50.8 million in fiscal years 2013, 2012 and 2011, respectively, to offset internal carrying costs charged to the segments. Fiscal year 2013 also includes a gain totaling $2.2 million related to the De Beers group settlement.

(d)

Assets allocated to segments include fixed assets, inventories, goodwill and investments held by our insurance operations. Unallocated assets include cash, prepaid assets such as rent, corporate office improvements and technology infrastructure.

(e)

Includes $31.2 million, $31.3 million and $33.4 million of fixed assets in fiscal years 2013, 2012 and 2011, respectively, related to foreign operations.

F-28

18. CONTINGENCIES

        In November 2009, the Company and four former officers, Neal L. Goldberg, Rodney Carter, Mary E. Burton and Cynthia T. Gordon, were named as defendants in two purported class-action lawsuits filed in the United States District Court for the Northern District of Texas. On August 9, 2010, the two lawsuits were consolidated into one lawsuit, which alleged various violations of securities laws arising from the financial statement errors that led to the restatement completed by the Company as part of its Annual Report on Form 10-K for the fiscal year ended July 31, 2009. The lawsuit requested unspecified damages and costs. On August 1, 2011, the Court dismissed the lawsuit with prejudice. The plaintiffs appealed the decision and on November 30, 2012 the United States Court of Appeals upheld the trial court's decision and affirmed dismissal of the plaintiff's case. The plaintiffs did not appeal this ruling and the matter was therefore dismissed with prejudice.

        The Company is a defendant in two purported class action lawsuits, Tessa Hodge v. Zale Delaware, Inc., d/b/a Piercing Pagoda which was filed on April 23, 2013 in California Superior Court and Naomi Tapia v. Zale which was filed on July 3, 2013 in the U.S. District Court, Southern District of California. The 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. Both 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 either lawsuit.

        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.

19. 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. ASC 605-20 requires recognition of warranty revenue on a straight-line basis until sufficient cost history exists. Once sufficient cost history is obtained, revenue is required to be recognized in proportion to when costs are expected to be incurred. Prior to fiscal year 2012, the Company recognized revenue from lifetime warranties on a straight-line basis over a five-year period because sufficient evidence of the pattern of costs incurred was not available. During the first quarter of fiscal year 2012, we began recognizing revenue related to lifetime warranty sales in proportion to when the expected costs will be incurred, which we estimate will 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. The deferred revenue balance as of July 31, 2011 related to lifetime warranties is being recognized prospectively, in proportion to the remaining estimated warranty costs. The change in estimate related to the pattern of revenue recognition and the life of the warranties was the result of accumulating additional historical evidence over the five-year period that we have been selling the lifetime warranties. The change in estimate increased revenues by $34.9 million and decreased our net loss by $32.4 million during fiscal year 2012. As a result, basic and diluted net loss per share improved by $1.00 per share during fiscal year 2012.

        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.

F-29

        The change in deferred revenue associated with the sale of warranties is as follows (in thousands):

	Year Ended July 31,
	2013			2012
Deferred revenue, beginning of period	$	208,516		$	232,180
Warranties sold(a)		130,169			123,121
Revenue recognized		(147,440	)		(146,785	)
Deferred revenue, end of period	$	191,245		$	208,516

(a)

Warranty sales for the years ended July 31, 2013 and 2012 include approximately $0.9 million and $1.9 million, respectively, related to the depreciation in the Canadian currency rate on the beginning of the period deferred revenue balance.

        Revenues associated with warranties in fiscal years 2013, 2012 and 2011 totaled $147.4 million, $146.8 million and $96.8 million, respectively. Gross margin associated with warranties in fiscal years 2013, 2012 and 2011 totaled $120.1 million, $120.8 million and $75.2 million, respectively.

20. RETIREMENT PLANS

        We maintain the Zale Corporation Savings & Investment Plan (the "U.S. Plan") and the Zale Corporation Puerto Rico Employees Savings and Investment Plan (the "PR Plan", collectively the "Plans"). The Plans are defined contribution plans covering substantially all employees of the Company who have completed one year of service (at least 1,000 hours) and are age 21 or older. Participants in the Plans can contribute from one percent to 60 percent (30 percent for highly-compensated employees) of their annual salary subject to Internal Revenue Service and Puerto Rico Internal Revenue Code limitations. Upon satisfying all eligibility requirements, employees who have not otherwise elected will be automatically enrolled in their respective plan at a contribution rate of five percent for participants in the U.S. Plan or two percent for participants in the PR Plan as of July 31, 2013. Effective February 27, 2009, we suspended matching contributions until business conditions support the reinstatement of the matching contributions.

F-30

21. QUARTERLY RESULTS FROM CONTINUING OPERATIONS (UNAUDITED)

        Unaudited quarterly results from continuing operations for the fiscal years ended July 31, 2013 and 2012 were as follows (in thousands, except per share data):

	Fiscal Year 2013 For the Three Months Ended
	July 31, 2013			April 30, 2013		January 31, 2013		October 31, 2012
Revenues	$	417,089		$	442,708	$	670,752	$	357,468
Gross margin		221,582			232,847		339,651		190,335
(Loss) earnings from continuing operations(a)		(7,984	)		5,052		41,208		(28,265	)
(Loss) earnings per basic share from continuing operations		(0.25	)		0.16		1.27		(0.88	)
(Loss) earnings per diluted share from continuing operations		(0.25	)		0.13		1.02		(0.88	)

	Fiscal Year 2012 For the Three Months Ended
	July 31, 2012			April 30, 2012			January 31, 2012		October 31, 2011
Revenues	$	406,963		$	445,170		$	663,762	$	350,983
Gross margin		209,885			228,193			335,512		187,674
(Loss) earnings from continuing operations(b)		(19,665	)		(4,440	)		28,930		(31,720	)
(Loss) earnings per basic share from continuing operations		(0.61	)		(0.14	)		0.90		(0.99	)
(Loss) earnings per diluted share from continuing operations		(0.61	)		(0.14	)		0.78		(0.99	)

(a)

The earnings (loss) from continuing operations for the first and third quarters include gains totaling $1.9 million and $0.3 million, respectively, related to the De Beers settlement.

(b)

The loss from continuing operations for the fourth quarter includes costs incurred related to the debt refinancing transactions totaling $5.0 million.

F-31

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 27^th day of September, 2013.

ZALE CORPORATION

/S/ THOMAS A. HAUBENSTRICKER
THOMAS A. HAUBENSTRICKER
Chief Financial Officer

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Theo Killion and Matthew W. Appel, and each of them, as his true and lawful attorneys-in-fact and agents, with full powers and substitution and resubstitution for him, in his name place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do perform each and every act and thing requisite and necessary to be done in and about the premises as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ THEO KILLION Theo Killion	Chief Executive Officer (principal executive officer of the registrant), Director	September 27, 2013
/s/ THOMAS A. HAUBENSTRICKER Thomas A. Haubenstricker	Chief Financial Officer (principal financial officer of the registrant)	September 27, 2013
/s/ MATTHEW W. APPEL Matthew W. Appel	Chief Administrative Officer	September 27, 2013
/s/ JAMES E. SULLIVAN James E. Sullivan	Controller and Chief Accounting Officer (principal accounting officer of the registrant)	September 27, 2013
/s/ TERRY BURMAN Terry Burman	Chairman of the Board	September 27, 2013
/s/ JOHN B. LOWE, JR. John B. Lowe, Jr.	Director	September 27, 2013

Signature	Title	Date
/s/ YUVAL BRAVERMAN Yuval Braverman	Director	September 27, 2013
/s/ KENNETH B. GILMAN Kenneth B. Gilman	Director	September 27, 2013
/s/ NEALE ATTENBOROUGH Neale Attenborough	Director	September 27, 2013
/s/ JOSHUA OLSHANSKY Joshua Olshansky	Director	September 27, 2013
/s/ DAVID F. DYER David F. Dyer	Director	September 27, 2013
/s/ BETH M. PRITCHARD Beth M. Pritchard	Director	September 27, 2013

Exhibit Number		Description of Exhibit
	10.11	Base Salaries and Target Bonus for the Named Executive Officers for Fiscal Year 2013
	10.18	Private Label Credit Card Program Agreement with Alliance Data Systems Corporation
	23.1	Consent of Ernst & Young LLP
	31.1	Rule 13a-14(a) Certification of Principal Executive Officer
	31.2	Rule 13a-14(a) Certification of Chief Administrative Officer
	31.3	Rule 13a-14(a) Certification of Principal Financial Officer
	32.1	Section 1350 Certification of Principal Executive Officer
	32.2	Section 1350 Certification of Chief Administrative Officer
	32.3	Section 1350 Certification of Principal Financial Officer
	99.1	Audit Committee Charter
	99.2	Compensation Committee Charter
	99.3	Nominating/Corporate Governance Committee Charter
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase
	101.DEF	XBRL Taxonomy Extension Definition Linkbase
	101.LAB	XBRL Taxonomy Extension Label Linkbase
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase

        The above list reflects all exhibits filed herewith. See Item 15 for a complete list of our exhibits, including exhibits incorporated by reference from previous filings.

EX-10.11

Exhibit 10.11

BASE SALARY AND TARGET BONUS

FOR THE NAMED EXECUTIVE OFFICERS

The following table sets forth the current annual base salaries and target bonuses of the Chief Executive Officer and the other named executive officers of Zale Corporation (the “Company”).

Name	Base Salary		Target Bonus %
Theo Killion Chief Executive Officer	$	975,000	100	%
Thomas A. Haubenstricker Senior Vice President and Chief Financial Officer	$	435,000	45	%
Matthew W. Appel Chief Administrative Officer	$	600,000	75	%
Gilbert P. Hollander Executive Vice President and Chief Merchant and Sourcing Officer	$	580,000	75	%
Richard A. Lennox Executive Vice President and Chief Marketing Officer	$	455,000	75	%

EX-10.18

Exhibit 10.18

REDACTED COPY

PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT

AMONG

ZALE DELAWARE, INC.,

ZALE PUERTO RICO, INC.

AND

COMENITY CAPITAL BANK

DATED AS OF JULY 9, 2013

TABLE OF CONTENTS

SECTION 1. PROGRAM SUMMARY AND DEFINITIONS

1.1Program Summary

1.2Definitions and Other Obligations

1.3Program Launch Date

SECTION 2. EFFECTIVE DATE PRODUCTS AND SERVICES; ESTABLISHMENT OF THE PROGRAM ON THE PROGRAM LAUNCH DATE

2.1Effective Date Products and Services

2.2Establishment of the Program; Applications for Credit

2.3Internet Features

2.4Operating Procedures

2.5Program Documents (Forms and Collateral)

2.6Marketing and Promotion of Program

2.7Ownership of Accounts and Information

2.8Protection Products and Enhancement Marketing Services

2.9Ownership and Licensing of the Party’s Marks

2.10Other Offerings under the Program

2.11Cardholder Loyalty Program

2.12Purchase of Zale Program Accounts

SECTION 3. OPERATION OF THE PROGRAM ON AND AFTER THE PROGRAM LAUNCH DATE

3.1Honoring Credit Cards

3.2No Special Agreements

3.3Payment to Zale; Ownership of Accounts; Fees; Accounting

3.4Bank Mailings; Insertion of Zale’s Promotional Materials

3.5Payments

3.6Cardholder Disputes Regarding Accounts, Goods and/or Services

3.7Chargebacks

3.8Exercise of Chargebacks

3.9Non-Competition

3.10[Reserved]

3.11Reports

3.12New Businesses and Existing Credit Program Conversion

SECTION 4. REPRESENTATIONS AND WARRANTIES

4.1Organization, Power and Qualification

4.2Authorization, Validity and Non-Contravention

4.3Accuracy of Information

4.4Compliance with Law

4.5Intellectual Property Rights

4.6Zale Marks

4.7Validity of Charge Slips

SECTION 5. COVENANTS

i

5.1Notices of Changes

5.2Financial Statements

5.3Access rights

5.4Each Party’s Business

5.5Insurance

5.6Sales Information

5.7Business Continuation/Disaster Recovery Plan

5.8Compliance with Agreement and Operating Procedures

5.9Protection Products

SECTION 6. INDEMNIFICATION

6.1Indemnification Obligations

6.2LIMITATION ON LIABILITY

6.3NO WARRANTIES

6.4Notification of Indemnification, Conduct of Defense

SECTION 7. TERM, EXPIRATION AND TERMINATION

7.1Term and Expiration

7.2Termination with Cause by Bank; Bank Termination Events

7.3Termination with Cause by Zale; Zale Termination Events

7.4Purchase of Accounts

SECTION 8. MISCELLANEOUS

8.1Entire Agreement; Amendment; No Waiver; Severability; Counterparts; Captions and Cross References; Mutual Drafting

8.2Coordination of Public Statements

8.3Successors and Assigns

8.4Notices

8.5GOVERNING LAW / WAIVER OF JURY TRIAL

8.6Force Majeure

8.7Survival

8.8Relationship of Parties; Third Parties; Independent Contractor

8.9Confidentiality and Security Control

8.10Taxes

SCHEDULES

1.2Definitions and Other Obligations

1.3Program Launch Date

2.1Effective Date Products and Services

2.2(c)Credit Decisions

2.2(h)Service Standards

2.2(i)Operating Committee

2.2(j)Launch Date Products and Services

2.5(d)Certain Accounts

ii

2.6(a)Marketing Promotions

2.6(b)Flex Fund

2.7(c)(ii) Weekly Master File Information

2.7(c)(iii) Daily File Information

2.8(b)Protection Products and Enhancement Marketing Services

2.10Other Offerings under the Program after the Program Launch Date

2.12Portfolio Purchase and Sale Agreement

3.3(d)Summary of Rates and Fees

3.11Bank Reports

7.1Term and Expiration

7.4Purchase of Accounts

iii

PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT

THIS PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT (together with any schedules, exhibits, addenda, and future amendments and supplements hereto, the “Agreement”) is made as of the 9th day July, 2013, (the “Effective Date”) by and among ZALE DELAWARE, INC., a Delaware corporation (“Zale Delaware”), with its principal office at 901 W. Walnut Hill Lane, Irving, TX 75038-1003, ZALE PUERTO RICO, INC., a Puerto Rico corporation (“Zale PR” and together with Zale Delaware, “Zale”), with its principal office at 901 W. Walnut Hill Lane, Irving, TX 75038-1003, and COMENITY CAPITAL BANK, with its principal office at 2795 E. Cottonwood Parkway, Suite 100, Salt Lake City, Utah 84121 (hereinafter referred to as “Bank”).

WITNESSETH:

WHEREAS, as of the Effective Date, Zale has requested Bank to provide the Effective Date Products and Services and Bank has requested the right to participate in the current Zale Second Look Program (as such capitalized terms are defined below); and

WHEREAS, on the Purchase Date, Bank expects to purchase the Converted Accounts and the receivables related thereto of the Zale Program pursuant to the terms of the Portfolio Purchase and Sale Agreement (as such capitalized terms are defined below), and

WHEREAS, after the purchase of the Converted Accounts and the receivables related thereto, Zale has requested Bank to extend credit to qualifying individuals (including existing Converted Cardholders) in the form of private label open-ended credit card accounts for the purchase of Goods and/or Services from Zale through its Sales Channels and to issue corresponding Credit Cards to such individuals who have Accounts (as such capitalized terms are defined below); and

WHEREAS, Bank shall own all the Accounts, and Cardholder payments will be sent to such location as Bank shall from time to time direct (as such capitalized terms are defined below); and

WHEREAS, Bank will operate the Program after the Program Launch Date subject to the terms and conditions as more fully set forth herein;

NOW THEREFORE, in consideration of the terms and conditions hereof, and for other good and valuable consideration, the receipt of which is hereby mutually acknowledged by the parties, Zale and Bank agree as follows.

SECTION 1.  PROGRAM SUMMARY AND DEFINITIONS

1.1Program Summary.  For the benefit of both parties hereto, as of the Effective Date, Zale and Bank have agreed that Bank shall provide to Zale the Effective Date Products and Services, and as of the Program Launch Date, Zale and Bank have agreed to collaboratively launch, promote and maintain the Program, to be offered to customers, prospective customers, and employees of Zale.  The parties’ intent is that they will work in collaboration (emphasizing communication and good faith efforts) to maximize the value of the Program for their mutual

1

benefit.  To that end, the parties agree that, although the provisions of this Section 1.1 do not supersede either party’s rights and obligations as set forth elsewhere in this Agreement, it is the intent of each party that its respective performance under this Agreement shall be guided by the following objectives:

·Provide the Effective Date Products and Services

·Participate in the current Zale Second Look Program

·Support an orderly and successful transition from the previous issuer of the Zale Program

·Retain existing Converted Cardholders

·Provide Launch Date Products and Services

·Generate new Accounts, increase Credit Card penetration and increase Net Sales

·Increase Zale’s sales and improve overall profitability for Zale

·Develop and cultivate Customer relationships and build loyalty

In order to achieve the Program objectives, cooperation and communication between the parties is essential.  Accordingly, the parties shall establish an Operating Committee as set forth in Section 2.2(i).  Through such Operating Committee, the parties shall work together in good faith to review, discuss and address any particular concerns that either such party has with regard to the general performance of the overall Program, as well as any matters which either party believes to be material with respect to the ongoing administration of the Program.

1.2Definitions and Other Obligations.  See Schedule 1.2.

1.3Program Launch Date.  See Schedule 1.3.

SECTION 2.  EFFECTIVE DATE PRODUCTS AND SERVICES; ESTABLISHMENT OF THE PROGRAM ON THE PROGRAM LAUNCH DATE

2.1Effective Date Products and Services.  As of the Effective Date, Bank shall provide to Zale the Effective Date Products and Services, and Zale shall provide the Bank the right to participate in the current Zale Second Look Program.

2.2Establishment of the Program; Applications for Credit.

(a)As of the Program Launch Date, the parties agree that the Program’s primary purpose is to provide Customer financing for purchasing of Goods and/or Services from Zale through its Sales Channels, to provide a means to promote increased Zale’s sales, and to provide Bank a commercially reasonable financial return.  For the sake of clarity, the parties also agree that the terms and conditions set forth in Section 2 (other than Section 2.1) and Section 3 shall only apply as of and following the Program Launch Date or the Conversion Date, as applicable, and to the extent applicable, to Bank’s participation in the current Zale Second Look Program prior to the Program Launch Date.

(b)Zale and Bank shall use reasonable efforts to commence the Program on the Program Launch Date, or such other date as the parties mutually agree upon in writing.

2

(c)As of the Program Launch Date, Applicants who wish to apply for an Account under the Program must submit a completed application in a format approved by Bank, and Bank shall grant or deny the request for credit based upon Bank’s credit criteria.  The decision to extend credit to any Applicant under the Program shall be solely Bank’s decision.  In its sole discretion and consistent with the terms of this Agreement, Bank will develop and apply credit underwriting consistent with the goals of the Program, including generating new Accounts, developing long-term relationships with Cardholders, optimizing the usage of the Credit Card, maximizing profits associated with the Program, and operating the Program in a competitive manner.  After the Program Launch Date, Bank will use commercially reasonable efforts to have application approval rates in accordance with the targets specified in Schedule 2.2(c).  Notwithstanding any other provision of this Agreement, Zale’s sole and exclusive remedies arising from any failure by Bank to meet such application approval rate targets will be those set forth in Schedule 2.2(c).

(d)When facilitating any Application Procedure, Zale shall follow all applicable Operating Procedures and maintain the confidentiality of all Applicant data pursuant to Section 10.13.  Depending on the Application Procedure utilized, the application shall be submitted to Bank by the Applicant or submitted by Zale on behalf of the Applicant, as required in the Operating Procedures.

(e)The initial Application Procedures for the Program shall be ████████████ █████████████████████████████████████████████.  At any time during the Term, the parties may mutually agree to utilize Bank’s other Application Procedures.

(f)Qualified Applicants desiring to use the Program shall be granted an Account and issued a Credit Card by Bank with a credit line in an amount to be determined by Bank in its discretion for each individual Applicant.  Bank shall determine the terms and conditions of the Account to be contained in a Credit Card Agreement (see also Section 3.3(d) and Schedule 3.3(d)).

(g)Bank shall perform all functions necessary to administer and service the Accounts, including but not limited to: establishing and administering the underwriting and credit decisions for the Program; making all necessary credit investigations; notifying Applicants in writing of acceptance or rejection of credit under the Program; preparing and mailing billing statements; making collections; handling Cardholder inquiries; and processing payments.

(h)Bank shall perform in accordance with the Service Standards set forth in Schedule 2.2(h).  Bank will provide Zale with a monthly summary of Bank’s performance regarding the Service Standards.

(i)The parties shall establish an Operating Committee to review and discuss (i) marketing and promotional efforts; (ii) the general performance of the Program; and (iii) any matters which either party believes to be material with respect to the ongoing administration and/or operation of the Program.  The responsibilities and operating procedures of the Operating Committee shall be as set forth in Schedule 2.2(i).

3

(j)As of the Program Launch Date, but in any case no later than the Conversion Date, in addition to the Effective Date Products and Services, the Bank shall also provide to Zale the Launch Date Products and Services.

2.3Internet Features.  Bank shall establish an Account Center for the Program, and Zale shall provide a weblink to the Account Center.  In the event Bank changes or otherwise modifies the website address for its designated website, Zale will be given thirty (30) days notice (unless those changes or modifications are required by Applicable Law, then notice shall be given as soon as practicable) to either update or modify its link thereto, as directed by Bank.

2.4Operating Procedures.  Zale shall observe and comply with the Operating Procedures and such other reasonable procedures as Bank may prescribe on not less than thirty (30) days’ prior notice to Zale or otherwise required by Applicable Law.  The Operating Procedures may be amended or modified by Bank from time to time in its reasonable discretion; provided, however, (i) unless such changes are required by Applicable Law, a copy of any such amendment or modification shall be provided to Zale at least thirty (30) days before its effective date, and for those changes required by Applicable Law, notice shall be given as soon as practicable, and (ii) unless such changes are required by Applicable Law, they shall not, in the aggregate over time, impose a significant cost or other burden on Zale.

2.5Program Documents (Forms and Collateral).

(a)Forms - General.  Bank shall design, determine the terms and conditions of, and generate the form of the Credit Card Agreement, applications (other than the Protection Product portion of such application for which Zale shall be solely responsible), Credit Card, card mailers, privacy notices, billing statements (including backers), Cardholder letters, templates, and other documents and forms to be used under the Program which (i) relate to the Program, (ii) relate to Bank’s and/or the Cardholder’s obligations, (iii) are used by Bank in maintaining and servicing the Accounts; or (iv) are required by Applicable Law (collectively, “Forms”).  All Forms shall be in the English language only (and, with respect to Puerto Rico and certain other Zale markets agreed to by the parties, the Spanish language) unless otherwise agreed by the parties in writing. There shall be only one design for each Form per brand except to the extent required to accommodate different insurance language requirements in different jurisdictions.  Notwithstanding the above, Bank and Zale shall jointly design any Customer marketing aspects of billing statements, Credit Cards, and card mailers (other than marketing aspects with respect to the Protection Products offered by Zale and its Affiliates).  Upon Zale’s request, Bank shall submit such requested Forms containing a Zale Mark to Zale for its review and approval, which approval shall not be unreasonably withheld or delayed.

(b)Collateral.  Zale may design and produce promotional material, direct mail pieces, catalog, newspaper, radio and electronic advertisements, and other collateral documents (collectively, “Collateral”) which reference the Program.  Zale shall submit all Collateral to Bank for its review and approval of the Program disclosures, as well as references to the Program and use of Bank Marks.  Pursuant to this review and approval process that in no event shall last longer than five (5) Business Days, Zale will make (or have made) all changes that

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Bank requests to satisfy Applicable Law and/or in reasonably exercising its rights under this Agreement.

(c)Bank’s Costs.  Subject to subsection (d) below, Bank will provide, which shall be at its expense, to Zale at one central location, for distribution to Customers and Cardholders, marketing purposes, and mass mailings, as applicable: (i) adequate copies of Credit Card Agreements and applications; and (ii) the template of any other appropriate Forms (including, without limitation, privacy notices and pre-screen disclosures).

(d)Costs Related to Mailings to Certain Converted Cardholders.  Costs for mailings to certain Converted Cardholders as described in the immediately following paragraph shall be borne by Bank as set forth herein, including but not limited to (i) Credit Card design, production, plastics, and Credit Card Agreement; and (ii) postage, envelopes, and welcome kit enclosures.  All Forms, costs, and procedures related thereto shall be consistent with the terms of this Agreement, and in particular subsections (a), (b), and (e)(ii) of this Section 2.5.  By way of clarification and emphasis, the provisions of this subsection (d) relate to the initial, post-Conversion mailing to certain Converted Cardholders, and does not apply to subsequent re-issuances requested by Zale, as described in subsection (e) below.

Once the Conversion Date occurs, Bank shall issue a new Credit Card to each Converted Cardholder that:

(x) (i) Bank identifies as having made a purchase using her or his Zale Program Account twenty-four (24) months or less prior to the Conversion Date; (ii) Bank identifies as having made a purchase using her or his Zale Program Account between twenty-four (24) months and thirty-six (36) months prior to the Conversion Date, subject to Bank testing; or (iii) otherwise has attributes identified by Zale and mutually agreed to by Bank as making it reasonably likely that such Converted Cardholder will make additional Purchases from Zale within a reasonable period of time and to whom Zale shall provide additional value propositions to such Converted Cardholder; and

(y) is considered in good standing with Bank for reasons consistent with its practices, policies, and procedures, and

(z) represents a satisfactory level of risk per the Bank’s standard practices, policies and procedures.

Each such Converted Cardholder shall be assigned a credit limit by Bank in an amount at least equal to the credit limit in effect under the Zale Program prior to the Conversion Date.

(e)Zale’s Costs.

i)Zale Re-issuances.  By way of clarification and emphasis, the provisions of this subsection (e) do not obviate or otherwise modify Bank’s responsibilities under subsection (d) above.  Any re-issuances of Credit Cards to Cardholders requested by Zale after the Converted Cardholder re-issuance described in subsection (d) above, including upgrading (or downgrading) a Cardholder from one level to another, shall be referred to, collectively, as “Zale Re-issuances”.  Regarding any Zale Re-issuance, Zale shall pay all costs (i) for the card itself

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(including all embossing and encoding), card mailers, envelopes, Credit Card Agreements (if necessary), and other Forms, Collateral, and postage, and (ii) any Bank out-of-pocket expense necessitated by Zale’s decision to launch a Zale Re-issuance.  As a point of clarification, none of the following constitutes a Zale Re-issuance: Bank’s replacement (on an Account-by-Account basis) of lost or stolen Credit Cards, or in response to some other Cardholder request or the reopening of an Account as part of a purchase or potential purchase of Goods and/or Services.

ii)Variations from Bank’s Standards.  If a request or requirement (as applicable) of Zale with regard to any Program Documents requires a variation from Bank’s standard specifications, and such variation causes an increase in any cost of Bank, Zale shall bear the additional expense.  In the event any Forms become obsolete as a result of changes requested by Zale or necessitated by its decisions and/or actions, Zale shall reimburse Bank for the costs associated with any reasonable quantity of unused obsolete Forms.

(f)Miscellaneous Zale Expenses.  Zale shall pay all costs related to store signage, as well as any mass mailings requested by Zale (or shall seek reimbursement for such costs from the Flex Fund pursuant to the terms hereof).

2.6Marketing and Promotion of Program.

(a)Throughout the Term of this Agreement, Zale shall use commercially reasonable efforts to actively and consistently market, promote, participate in and support the Program, including without limitation those marketing promotions set forth in Schedule 2.6(a) and such other methods mutually agreed upon by Zale and Bank.  As one example, Zale agrees to prominently advertise and actively promote the Program through all Sales Channels (e.g., as applicable, signage at retail locations, catalog inserts, and promotions on Zale’s website).  Zale and Bank will jointly agree upon programs to market the Program, both initially and on a continuing basis.

(b)Subject to the terms thereof, Zale may use the Flex Fund to pay for marketing and promotion expenses associated with the Program.  Zale shall pay all marketing and promotion expenses directly as they are incurred, and shall send Bank an invoice for the aggregate amount of the expenditures mutually agreed upon by the parties, together with supporting documentation reasonably satisfactory to Bank for such expenses.  Bank shall then promptly reimburse Zale to the extent funds are available in the Flex Fund for such marketing and promotion expenses.

2.7Ownership of Accounts and Information.

(a)Zale and Bank recognize that Cardholders are Customers, and that each party has certain ownership rights in information relating to such individuals in their respective roles as Cardholders and Customers.  The parties acknowledge that the same or similar information may be contained in the Bank Cardholder Information (defined below) and the Zale Customer Information (defined below); such common information being referred to herein as “Common Information”.  Each such pool of data shall therefore be considered separate information subject to the specific provisions applicable to that data hereunder.

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(b)The Customer’s names and addresses, transaction information and other Customer information collected by Zale independent of Bank and set forth in Zale’s records shall be the exclusive property of Zale; such information and Zale’s Common Information shall be referred to collectively as “Zale Customer Information”.  Subject to Zale’s consent, which shall not be unreasonably withheld, Bank shall have the right to request and utilize Zale Customer Information for marketing and promotional purposes.  Without limiting the foregoing, it shall not be unreasonable for Zale to withhold its consent where the marketing or promotional purpose relates to a business or product competitive with Zale or otherwise prohibited by Applicable Law.

(c)(i) Bank shall own the Program, and all Accounts under the Program, from the time of establishment, and except as otherwise provided herein, Zale shall not have any right to any indebtedness on an Account or to any Account payment from a Cardholder arising out of or in connection with any Purchases under the Program.  Additionally, all information related to the Program and the Accounts set forth in Bank’s records, including without limitation the information listed in Schedules 2.7(c)(ii) and 2.7(c)(iii), the information obtained through applications, the receivables, names, addresses, credit, and transaction information of Cardholders shall be the exclusive property of Bank.  Such information and Bank’s Common Information shall be referred to collectively as “Bank Cardholder Information”.

(ii)Bank shall provide to Zale weekly one (1) master file extract, initially containing the information set forth on Schedule 2.7(c)(ii) to the extent such information is available (i.e. the information required to be provided by the Cardholder was in fact provided to the Bank) on the Bank’s system and Bank is not prohibited to share such information, and is subject to change by Bank at any time with sufficient notice to Zale.

(iii)Bank shall provide to Zale daily one (1) application file extract, initially containing the information set forth in Part A on Schedule 2.7(c)(iii) to the extent such information is available (i.e. the information required to be provided by Zale was in fact provided to the Bank) on the Bank’s system and Bank is not prohibited to share such information, and is subject to change by Bank at any time with sufficient notice to Zale.  Additionally, Bank shall also provide to Zale daily one (1) authorization file extract containing the information set forth in Part B on Schedule 2.7(c)(iii) to the extent Bank is not prohibited to share such information, and is subject to change by Bank at any time with sufficient notice to Zale.

(iv)Bank may agree to share additional Confidential Information and/or Bank Cardholder Information, and, unless Bank consents otherwise in advance and in writing, Zale shall keep such Confidential Information and Bank Cardholder Information confidential as set forth in Section 8.9, and shall not disclose such information to any third-party nor sell, lease, or otherwise transfer such information to any third-party except as set forth in Section 8.9.  Bank also shall provide up to twenty (20) designated Zale employees read-only access to Bank Cardholder Information with respect to the Protection Products.

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2.8Protection Products and Enhancement Marketing Services.

(a)Zale and Bank agree that Zale or an Affiliate of Zale, at its option, shall have the right to market and make available to Cardholders for purchase the Protection Products.  The fees for the Protection Products may be charged to the applicable Cardholder’s Account.  For avoidance of doubt, the Bank shall have no liability with respect to, and Zale shall immediately reimbursement Bank for, Losses incurred by Bank pursuant to the Protection Products offered by Zale or an Affiliate of Zale.  Zale and Bank agree that Bank will have the exclusive right but not the obligation, and in any event subject to Zale’s prior written consent, not to be unreasonably withheld or delayed, to make available to Cardholders, through solicitations made in connection with their Accounts, various types of products and services other than, and that do not compete with, Protection Products and other Goods and Services sold by Zale.  Such other products and services shall be referred to collectively herein as “Enhancement Marketing Services”.  Such Enhancement Marketing Services include, but are not limited to, travel clubs, legal services, and merchandise products.  Bank and Zale shall mutually agree to offers extended through direct mail, telemarketing, statement inserts, and statement messaging prior to execution.  Zale shall have no liability with respect to, and Bank shall immediately reimburse Zale for, Losses incurred by Zale pursuant to the Enhancement Marketing Services.  The charges for Enhancement Marketing Services will be billed to the applicable Cardholder’s Account when appropriate.  Bank shall have the right but not the obligation to immediately terminate any Enhancement Marketing Services if and when either party:  (i) terminates this Agreement, (ii) notifies the other party of an intent to terminate or that the notifying party has already terminated this Agreement, or (iii) notifies the other of an intent to allow this Agreement to expire.

(b)See Schedule 2.8(b).

2.9Ownership and Licensing of the Party’s Marks.

(a)Subject to the other provisions of this Agreement, Zale hereby grants to Bank a royalty free, non-exclusive (except as to branded credit account and card plans per Section 3.9), non-transferable license to use the Zale Marks solely in satisfaction of its duties, rights and obligations described in this Agreement, including without limitation, using same in any and all promotional materials, Account documentation, advertising, websites, marketing, and solicitations related to the Program, as well as Bank’s and its Affiliates’ product marketing and promotional materials and literature in written and electronic form, as well as their business client lists.  Bank shall use the trademark designations “®” or “TM” or such other designation as Zale may specify or approve in connection with the Zale Marks.  Bank agrees it will not use the Zale Marks on or in connection with any products or services or for any other purpose other than (i) as explicitly described in this Agreement; (ii) for Bank’s business purposes in furtherance of this Agreement, including, but not limited to, securitization activities; and/or (iii) as required by Applicable Law.

(b)Anything in this Agreement to the contrary notwithstanding, Zale shall retain all rights in and to Zale Marks, and all goodwill associated with the use of Zale Marks (whether under this Agreement or otherwise) shall inure to the benefit of Zale.  Zale shall have the right, in its sole and absolute discretion, to prohibit the use of any Zale Marks in any Forms, advertisements or other materials or references proposed to be used by Bank which Zale in its reasonable business judgment deems objectionable or improper.  Bank shall cease all use of

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Zale Marks upon the termination of this Agreement for any reason unless Bank retains the Accounts after termination of the Agreement.  In that case, Bank may use Zale Marks solely in connection with the administration and collection of the balance due on the Accounts.

(c)Zale recognizes that Bank is the sole owner of the Bank Marks, that Zale has no rights of ownership or license therein, and that Zale is not entitled to (and shall not) use the Bank Marks other than as explicitly and specifically provided in this Agreement.  As a point of clarification, Bank has and retains all rights in and to Bank Marks and the use thereof, and all goodwill associated with the use of Bank Marks (whether under this Agreement or otherwise) shall inure to the benefit of Bank.  Bank shall have the right, in its sole and absolute discretion, to prohibit the use of any Bank Marks in any Program Documents, advertisements, or other materials or references proposed to be used by Zale which Bank in its reasonable business judgment deems objectionable or improper.  Zale shall cease all use of Bank Marks upon the termination of this Agreement for any reason.

2.10Other Offerings under the Program.  See Schedule 2.10.

2.11Cardholder Loyalty Program.

(a)If Zale chooses to own and operate a loyalty program for Cardholders (a “Loyalty Program”), Zale will be responsible for determining its rules, funding the rewards related to it, and ensuring compliance with all Applicable Laws.  Bank may assist Zale in developing such Loyalty Program, provided that Bank shall have no responsibility, or assume any liability, for such Loyalty Program.

(b)Upon request by Zale, and to the extent available, Bank will provide Zale with certain system functionality tied to the Accounts to support the Loyalty Program, for matters such as recording the accumulation of loyalty points, tracking, lookup/reporting, and redemption where a coupon is part of the billing statement.  Any such system functionality provided by Bank shall be at no additional charge to Zale, to the extent the Loyalty Program: (i) is compatible with Bank’s existing or future functionality offered to other Bank clients; (ii) does not require Bank to incur significant additional internal or external expense; and (iii) does not include stand-alone mailings.  Otherwise, such functionality if available shall be provided pursuant to terms (including fees to Bank) mutually agreed to by the parties.

2.12Purchase of Zale Program Accounts.  See Schedule 2.12.

SECTION 3.  OPERATION OF THE PROGRAM ON AND AFTER PROGRAM LAUNCH DATE

3.1Honoring Credit Cards.  Zale agrees that Zale will honor any Credit Card (or prior to the Conversion Date, any Zale Program Credit Card) properly issued and currently authorized by Bank pursuant to the Program.  In addition, Zale shall deliver to Bank all Transaction Records evidencing transactions made under the Program.

3.2No Special Agreements.  Zale will not extract any special agreement, condition, fee, or security from Cardholders in connection with their use of a Credit Card, except for flat

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fees in connection with the use of promotional programs, or unless approved in advance by Bank in writing.

3.3Payment to Zale; Ownership of Accounts; Fees; Accounting.

(a)Each day (not just Business Days), Zale shall electronically transmit all Transaction Records (i.e., charge slips) from its main offices and/or its Sales Channels to Bank within a reasonable period of time and in a format acceptable to Bank.  Upon receipt, Bank shall use commercially reasonable efforts to promptly verify and process such Transaction Records and, in the time frames specified herein, Bank will remit to Zale an amount equal to the Net Proceeds indicated by such Transaction Records for the Credit Sales Day(s) for which such remittance is made.  Bank will transfer funds via Automated Clearing House (“ACH”) to the Zale Deposit Account.  For Transaction Records received by Bank’s processing center before 9 AM Eastern time on a Business Day, such ACH transfer will have an effective date of that Business Day, plus one (1) Business Days thereafter.  For Transaction Records received by Bank’s processing center either (i) after 9 AM Eastern time on a Business Day, or (ii) on a non-Business Day, such ACH transfer will have an effective date of that Business Day, plus two (2) Business days thereafter.

(b)Effective upon the delivery of each Transaction Record by Zale to Bank and payment to Zale by Bank pursuant to Section 3.3(a), Zale shall be deemed to have transferred, conveyed, assigned and surrendered to Bank all right, title or interest in all related charge slips and in all other rights and writings evidencing the obligation of Customer to pay for such Purchases, if any.

(c)All Transaction Records are subject to review and acceptance by Bank.  In the event of a computational or similar error of an accounting or record keeping nature with respect to such Transaction Records, Bank may credit to the Zale Deposit Account or net against the Net Proceeds (as the case may be) the proper amount as corrected.  If the Net Proceeds are insufficient, Zale shall remit the proper amount to Bank promptly following notification from Bank.  Upon any such correction, Bank shall give Zale prompt notice of same, including details of the discrepancy and correction.  Zale shall be responsible for ensuring that all Promotional Program Purchases are properly designated as such on the Transaction Record in accordance with the Operating Procedures.

(d)The Credit Card Agreement shall include the Rates and Fees as are set forth in Schedule 3.3(d).  In connection with its servicing of the Accounts, Bank may make changes to the Rates and Fees and payment terms on an individual Account by Account basis intended to enhance collections and/or customer service relations without notice to Zale.  On other than an Account by Account basis, Bank may make changes to the Rates and Fees required by Applicable Law at any time, but otherwise must provide thirty (30) days advance notice of changes to Zale.

(e)Zale shall obtain and maintain at its own expense such Point of Sale terminals, cash registers, network (electronic communication interchange system), telephone or other communication lines, software, hardware, websites and other items of equipment as are necessary for it to request and receive authorizations, transmit charge slip and credit slip

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information, facilitate the Application Procedures and perform its obligations under this Agreement.  The computer programs and telecommunications protocols necessary to facilitate communications between Bank and Zale (and/or Bank and specific Sales Channels, if applicable) shall be reasonably determined by Bank from time to time, subject to reasonable prior notice of any change in such programs, equipment or protocols.

(f)In addition to Bank’s rights pursuant to Sections 3.3(c) and 3.7, Bank may, if Zale fails to pay Bank any amounts due to Bank pursuant to this Agreement for more than thirty (30) days after the due date, offset such amounts against the Net Proceeds or any other amounts owed by Bank to Zale under this Agreement.

3.4Bank Mailings; Insertion of Zale’s Promotional Materials.  Envelope space (including bangtail) for billing statements and Credit Card mailers shall be allocated as follows:

(a)“Priority Materials”, defined as: legally required material, privacy notices, disclosures, Cardholder notices, billing statements, new Credit Card mailers, Credit Card Agreement, and non-marketing related notices sent by Bank;

(b)Zale’s promotional materials, subject to the following terms:

At Zale’s request, Bank will include with the billing statements and new Credit Card mailers Zale promotional materials provided by Zale, so long as the materials:  (i) are provided to Bank at least thirty (30) days prior to the scheduled mailing date of such statements or notices and pursuant to an insert schedule that Zale provided to Bank at least sixty (60) days in advance; (ii) other than promotional materials for the Protection Products, have been approved as to content by Bank (which approval shall not be unreasonably withheld or delayed) with respect to any manner of reference to Bank or the Program; (iii) meet all size, weight, or other specifications for such inserts as shall be reasonably set by Bank from time to time; (iv) would not require the removal (in Bank’s standard envelope) of Priority Materials and/or Bank’s other inserts in clause (c) below (provided, that Bank’s other inserts in clause (c) below shall be subordinate to Zale’s promotional materials in this clause (b)); and (v) are paid for by Zale, along with all additional postage costs caused by Bank’s insertion of such materials.  Bank shall only insert Zale materials (and charge such additional expense to Zale) if Zale approves such insertion regardless of the additional postage costs.  Bank reserves the right to disallow any inserts which are in violation of Applicable Law, conflict with any other provision of this Agreement, or whose subject matter is reasonably deemed by Bank to be objectionable or improper; provided, that, Bank shall have no obligation to review any promotional materials with regard to the Protection Products to ensure they comply with Applicable Law; and

(c)Bank’s other inserts (including bangtail).

3.5Payments.  All payments to be made by Cardholders with respect to any amounts outstanding on the Accounts shall be made in accordance with the instructions of Bank.  Zale hereby authorizes Bank, or any of its employees or agents, to endorse “Comenity Capital Bank” upon all or any checks, drafts, money orders or other evidence of payment, made payable to Zale and intended as payment on an Account, that may come into Bank’s possession from Cardholders and to credit said payment against the appropriate Cardholder’s Account To the

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extent that Zale receives a payment on an Account, Zale will on Bank’s behalf hold such payment in trust for Bank and will within one (1) Business Day after receipt include the amount of such payment in the Transaction Records sent to Bank pursuant to this Agreement.  Bank will charge the amount of such payment against the Zale Deposit Account.  Payments made by Cardholders to Zale shall not be deemed received by Bank until Bank receives and accepts the Transaction Records.  Bank has the sole right to receive and retain all payments made with respect to all Accounts and to pursue collection of all amounts outstanding, unless a Purchase is charged back to Zale pursuant to the provisions of Sections 3.7 and 3.8 hereof.  If Zale is in default hereunder, if required by Applicable Law, or, subject to Bank’s use of commercially reasonable efforts to eliminate or mitigate the impact of such requirements, to comply with the requirements set forth in any Bank securitization of the Accounts Receivable, Zale shall promptly comply with any written instruction by Bank or any successor to Bank to cease accepting Account payments and thereafter inform Cardholders who wish to make payments that payments should be made to Bank.

3.6Cardholder Disputes Regarding Accounts, and Goods and/or Services.  Zale shall promptly notify Bank regarding any written or significant oral Cardholder dispute regarding an Account and help to resolve any such dispute, including but not limited to any Applicant or Cardholder claim, dispute, or defense which may be asserted under Applicable Law.  This includes but is not limited to claims related to outstanding balances, Bank reports to credit bureaus, finance charges, fees, and collection efforts (e.g., notification that the Cardholder has filed bankruptcy or wants collection communications directed to legal counsel, etc.).  Additionally, Zale shall act promptly to investigate and work to resolve disputes with Cardholders regarding Goods and/or Services obtained through Zale pursuant to the Program, and timely process approved credits or refunds for Cardholders.

3.7Chargebacks.  Bank shall have the right to charge back Zale the amount of any Purchase, including the unpaid principal balance (excluding any finance charges and fees) and applicable sales tax, including and any of such amounts written off by Bank, and any royalty paid by Bank to Zale, relating to any such Purchase:

There has been a: (i) breach of warranty or representation by Zale; (ii) use of the Credit Card where Zale has not complied with Operating Procedures; (iii) charge for something other than an actual Purchase; or (iv) the charge slip (or electronic equivalent) related to the Purchase is a duplicate of one already paid and/or the price on it differs from the price on the Cardholder’s copy of same.

Notwithstanding the terms and conditions of the Operating Procedures:

(i) the look-back period for the amount of any Purchase to be charged back to Zale, shall be twelve months;

(ii) so long as Zale does not display the Cardholder’s account number real time on the internet upon approval of such new Account, any Purchase by such Cardholder within thirty (30) days after such approval, regardless of Sales Channel, shall not be eligible for charge back to Zale; and

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(iii) if Zale does display the Cardholder’s account number real time on the internet upon approval of such new Account, Bank shall monitor fraudulent Purchases made on such Accounts and if the aggregate annual amount of fraudulent Purchases made on such Accounts is greater than $10,000, Bank shall provide notice to Zale of such fact and thereafter any amounts of fraudulent Purchases made on such Accounts above an aggregate annual amount of $10,000 may be eligible for charge back to Zale.

Additionally, if the use of the Credit Card results in a forced sale transaction, Bank shall track such transaction and shall only charge back to Zale the remaining balance of such transaction that remains outstanding one hundred seventy-five (175) days past due.

3.8Exercise of Chargebacks.  With respect to any amounts to be charged back pursuant to Section 3.7, Bank will offset such amount as part of the Net Proceeds to be paid to Zale, to the extent the balance thereof is sufficient or Bank may demand payment from Zale in immediately available funds for the full or any partial amount of such chargeback.  Upon payment in full of the related amount by Zale to Bank, or off-setting, as the case may be, Bank shall transfer to Zale, without any representation, warranty or recourse (other than that Bank has complied with all Applicable Laws), all of Bank’s right to payments of such amounts charged back in connection with such Purchase.  Bank will exercise commercially reasonable efforts to cooperate with Zale in any efforts by Zale to collect the chargeback amount.  Bank may reduce the amount owed by a Cardholder on any Purchase subject to chargeback, but the related chargeback shall then be equal to the reduced (or net) amount owed by the Cardholder.  Zale shall not resubmit or re-transmit any charged back Purchase to Bank, without Bank’s prior written consent.

3.9Non-Competition.

(a)Except as otherwise provided in subsections (b) and (c) below, at all times after the Purchase Date, Zale agrees that, in consideration of and as an inducement for Bank to make the Program available to Zale as provided in this Agreement, Zale (including its Affiliates other than Zale Canada Co.) shall not, either on its own or under contract or in concert with any third-party, establish, provide, own, accept or process any (i) “private label” or “co-brand” revolving credit card, (ii) debit card that is “branded” (with a Zale Mark or other mark related to or for the promotion of Zale and/or its Affiliates); or (iii) other Financial Product.

(b)Notwithstanding the provisions set forth in subsection (a) above or elsewhere in this Agreement, nothing contained in this Agreement will be construed to prohibit or prevent Zale from accepting (i) any major general purpose credit card (including without limitation, American Express Card, MasterCard, Visa, or Discover) that is not “branded” (with a Zale Mark or other mark related to or for the promotion of Zale and/or its Affiliates); (ii) any form of general purpose debit card that is not “branded”; (iii) any widely-used non-”branded” internet-based payment or deferred payment product (except for the GE Capital Jewelry Express payment product, the TD Bank L.J.C. payment product, the Wells Fargo Jewelry Advantage payment product, or any other similar jewelry or big-ticket payment product, whether now or hereafter offered); provided, that: (A) Zale will not actively promote any such product (i.e. not do more than display such product where Zale customarily displays the other payment options Zale accepts), but shall accept them only as payment options on the check-out

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(or other customary) page of its websites or at the Point of Sale; (B) Zale will not grant a license to the providers of such products for the use of any Zale Mark utilized by Zale and Bank on any Credit Card in connection with any such arrangement; and (C) with respect to any purchases made using any such deferred payment product, such deferred payment product shall be the sole and exclusive  product, special or promotion being utilized and Zale will not offer, directly or indirectly, access to any other special or promotional credit terms, including without limitation, any deferred payment or deferred interest promotions, any installment purchase arrangements or any promotional or introductory annual percentage rates; or (iv) any payment programs for Applicants declined in whole or part by Bank.  Additionally, the prohibitions set forth in subsection (a) will not apply after termination or expiration of this Agreement.

(c)Subject to Zale’s compliance with this Section 3.9(c), but without implication limiting clauses (i) to (iv) of Section 3.9(b), Bank hereby grants a limited waiver to the provisions of Section 3.9(a) of this Agreement solely for the purpose of permitting Zale to offer a Second Look Program; provided, that Zale shall continue to promote the Program as the primary source of credit for Zale customers for the duration of the Program, and Zale shall continue to provide levels of support to the management and operation of the Program in accordance with this Agreement and in a manner substantially consistent with the support Zale would provide if the Second Look Program did not exist.  The parties agree that to the extent Zale offers a Second Look Program, it shall not affect Bank’s right to determine or adjust its credit policy for the Program.  Zale shall not advertise to the general public any promotional offers for the purchase of Goods and Services as part of a Second Look Program if such promotional offers are inconsistent with the promotional offers made to the general public under the terms of the Program; provided further, that the parties hereto agree that any account information or legal disclosures made by Zale or a provider of a Second Look Program at the POS to any Qualifying Person shall not be deemed to be advertising of a promotional offer.  To the extent Bank offers the Second Look Program, such program may be terminated by either party in accordance with the terms thereof.  To the extent that the provider of a Second Look Program is a party other than Bank, Bank agrees to use its commercially reasonable efforts to develop and implement changes to the Application that would allow Zale to provide Application information to the provider of the Second Look Program; provided, that in all cases the Applications and the information set forth therein shall be determined by Bank in its reasonable discretion.  Further, to the extent that changes to the Application are implemented to support the Second Look Program, Zale shall be solely responsible for all of Bank’s incremental costs and expenses associated with any variations from Bank’s standard specifications.

(d)For the avoidance of doubt, each of the parties acknowledge and agree that prior to the Purchase Date, the Zale Program does not violate the terms and conditions of this Section 3.9.

3.10[Reserved].

3.11Reports.  Bank will deliver to Zale the reports set forth in Schedule 3.11, as specified therein and to the extent information is available and applicable.  Bank may provide any additional reports requested by Zale upon such terms and conditions (including cost and timing) as are mutually agreed to by the parties.

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3.12New Businesses and Existing Credit Program Conversions.

(a)General:  If Zale internally develops a new business or acquires another pre-existing business that does not fall within the definition of Sales Channels as set forth in Schedule 1.2, such business shall be referred to as a “New Business”, and Zale shall promptly notify Bank in writing of the existence of the New Business.

(b)If the New Business involves the sale of substantially the same goods and services to substantially the same customer base as Zale’s then current operations, and either it is internally developed, or it is not internally developed but it has no pre-existing credit program, then the following provisions shall apply:  the parties shall execute an amendment to this Agreement incorporating the New Business into this Agreement, subject to the same terms and conditions as set forth in this Agreement.

(c)With respect to any New Business that does not involve the sale of substantially the same goods and services to substantially the same customer base as Zale’s then current operations, the following provisions shall apply:  Bank shall have a right to be the first bidder on adding such New Business to the Program (or creating a new credit card plan for the New Business), and Zale and Bank shall negotiate the terms of adding the New Business to the Program in good faith for no less than sixty (60) days.  If, after sixty (60) days the parties have not come to an agreement, Zale may consider competitive bids from other providers.

(d)If the New Business offers an existing credit program, Zale may elect to (1) continue its contractual relationship with the current third-party issuer/provider (if any), (2) negotiate with Bank for the administration of the credit program, (3) administer such credit program itself, or (4) offer such credit program for sale to a third party.

SECTION 4.  REPRESENTATIONS AND WARRANTIES

Each party makes the following representations and warranties to the other party as of the date of this Agreement:

4.1Organization, Power and Qualification.  Such party is duly organized, validly existing and in good standing under the laws of its jurisdiction or organization and has full power and authority to enter into this Agreement and to carry out the provisions of this Agreement.  Such party is duly qualified and in good standing to do business in all jurisdictions where located and/or conducting business, except where the failure to be so qualified would not have a material adverse effect on such party’s business or such party’s or the other party’s ability to perform as required under this Agreement or operate the Program.

4.2Authorization, Validity and Non-Contravention.

(a)This Agreement has been duly authorized by all necessary corporate proceedings (or analogous governing proceedings) by such party.  Further, this Agreement has been duly executed and delivered by such party, and is a valid and legally binding agreement of such party and duly enforceable in accordance with its terms (except as such enforcement may be

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limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and by general equity principles).

(b)No consent, approval, authorization, order, registration or qualification of or with any court or regulatory authority or other governmental body having jurisdiction over such party is required for (nor would the absence of such adversely affect) the legal and valid execution and delivery of this Agreement, and the performance of the transactions contemplated by this Agreement.

(c)The execution and delivery of this Agreement by such party and the compliance by such party with all provisions of this Agreement:  (i) will not conflict with or violate any Applicable Law; and (ii) will not conflict with or result in a breach of or default under any of the terms or provisions of any indenture, loan agreement, or other contract or agreement to which such party is a party (including but not limited to any under which such party is an obligor or by which its property is bound; provided, that such representation specifically excludes the Zale Program Agreement or any other contract or agreement governing the Zale Program through the Purchase Date) where such conflict, breach or default would have a material adverse effect on such party or the Program, nor will such execution, delivery or compliance violate or result in the violation of the governing documents of such party.

4.3Accuracy of Information.  All factual information furnished by such party to the other party hereto in writing at any time pursuant to any requirement of, or furnished in response to any written request of such other party under this Agreement or any transaction contemplated hereby has been, and all such factual information hereafter furnished by such party to the other party hereto will be, to such party’s best knowledge and belief, true and accurate in every respect material to the transactions contemplated hereby on the date as of which such information was or will be stated or certified.

4.4Compliance with Law.  Any action taken by such party or inaction (where such party has a duty to act) in connection with the Program and/or the other party hereto, shall be in compliance with all Applicable Law, except where the failure to comply, individually or in the aggregate, does not or will not have a material adverse effect on such party, such other party, or the Program as a whole.  Zale’s compliance with Applicable Law includes, but is not limited to, not engaging in: the sale of any illegal goods and/or services, the illegal sale of otherwise legal goods and/or services, sales in violation of federal and state laws designed to prevent unlawful gambling, and unfair, deceptive and abusive trade practices.  Bank’s compliance with Applicable Law includes, but is not limited to, complying with all credit (including prohibitions against discriminating in the granting of credit), credit reporting and collection laws.

4.5Intellectual Property Rights.

(a)In the event Zale provides any software or hardware to Bank, Zale has the legal right to such software or hardware and the right to permit Bank to use such software or hardware, and such use shall not violate any intellectual property rights of any third party.  Any software or other technology developed by or for Zale or its Affiliates, to facilitate the Program, including but not limited to, software and software modifications developed in response to Bank’s request or to accommodate Bank’s special requirements and all derivative

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works, regardless of the developer thereof, will remain the exclusive property of Zale and/or its Affiliates.  Nothing in this Agreement shall be deemed to convey a proprietary interest to Bank or any third party in any of the software, hardware, technology or any of the derivative works thereof which are owned or licensed by Zale and/or its Affiliates, and Bank shall return to Zale all materials containing such intellectual property upon termination of this Agreement.

(b)In the event Bank provides any software or hardware to Zale, Bank has the legal right to such software or hardware and the right to permit Zale to use such software or hardware, and such use shall not violate any intellectual property rights of any third party.  Any software or other technology developed by Bank or its Affiliates or developed for Bank or its Affiliates at Bank’s expense, to facilitate the Program, including but not limited to, software and software modifications developed in response to Zale’s request or to accommodate Zale’s special requirements and all derivative works, regardless of the developer thereof, will remain the exclusive property of Bank and/or its Affiliates.  Nothing in this Agreement shall be deemed to convey a proprietary interest to Zale or any third party in any of the software, hardware, technology or any of the derivative works thereof which are owned or licensed by Bank and/or its Affiliates, and Zale shall return to Bank all materials containing such intellectual property upon termination of this Agreement.

4.6Zale Marks.  In the case of Zale, Zale has the legal right to use and to permit Bank to use, to the extent set forth herein, the Zale Marks.

4.7Validity of Charge Slips.  Zale represents and warrants that, as of the date any Transaction Records are presented to Bank in accordance with the provisions of this Agreement, each charge slip (or electronic equivalent) relating to such Transaction Records shall represent the obligation of a Cardholder in the respective amount set forth therein for Goods sold or Services rendered, together with applicable taxes, if any, and shall not involve any element of credit for any other purpose.  Zale further warrants that, as of the date any Transaction Records are presented to Bank in accordance with the provisions of this Agreement, Zale has no knowledge or notice of any fact or matter which would immediately or ultimately impair the validity of any charge slip relating to such Transaction Records, the transaction evidenced thereby, or, other than factors relating to general credit worthiness, its collectability.

SECTION 5.  COVENANTS

Each party hereby covenants and agrees as follows:

5.1Notices of Changes.  Each party will as soon as reasonably possible notify the other of any:  (a) change in the name or form of its business organization, change in the location of its chief executive office or the location of the office where its records concerning the Program are kept; (b) merger (where it is not the surviving entity) or consolidation of such party, the sale of all or substantially all of its assets, or any change in the control of such party; (c) material adverse change in its financial condition or operations (not otherwise disclosed in such party’s SEC filings); (d) in the case of Zale, thirty (30) days advance notice of the opening or closing of any Zale Store and ninety (90) days advance notice of the opening or closing of any Sales Channel; provided, that notice shall be given as soon as practicable if facts and circumstances require an immediate closing in either case sooner than the required notice period;

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(e) any change in business practices of such party that would have a material adverse effect on its ability to fulfill its obligations under this Agreement or the Program; (f) in the case of Zale, any occurrence that would constitute a Bank Termination Event under Section 7.2; or (g) in the case of Bank, any occurrence that would constitute a Zale Termination Event under Section 7.3.  Each party will furnish such additional information with respect to any of the foregoing as the other party may reasonably request, for the purpose of evaluating the effect of such change on the financial condition and operations of the affected party and on the Program.

5.2Financial Statements.  Each party shall furnish to the other as soon as available the following information (on a consolidated basis if applicable):  (a) a balance sheet as of the close of each fiscal year; (b) a statement of income, retained earnings, and paid-in capital to the close of each fiscal year; (c) a statement of cash flow to the close of each such period; and (d) a copy of the opinion submitted by such party’s independent certified public accountants in connection with such of the financial statements as have been audited; provided, however, that (i) as long as Bank is a subsidiary of Alliance Data Systems Corporation (“ADSC”), and ADSC is publicly traded, Bank may satisfy the foregoing requirements by ADSC’s filing with the SEC copies of its quarterly 10-Q filings and annual 10-K filing, and (ii) as long as Zale Delaware is a subsidiary of Zale Corporation or another corporation and such parent entity files reports with the SEC, Zale may satisfy the foregoing requirement by its parent’s filing with the SEC copies of its parent’s quarterly 10-Q filings and annual 10-K filing.

5.3Access Rights.

(a)Subject to (b) below, each party will permit, once per Program Year unless the other party has reasonable cause to do so more than once, authorized representatives designated by the accessing party, at accessing party’s expense, to visit its facilities and inspect, to the extent permitted by Applicable Law, any of its books and records (and, in the case of Zale, its Sales Channels) pertaining to Applicants, Accounts, Transaction Records, any category of payments owed by one party to the other, and the Protection Products, including without limitation, any marketing and promotional materials, customer service scripts, manuals, training programs, and operating procedures and controls associated therewith, and to make copies and take extracts there from, and to discuss the same with its officers and independent public accountants, all at reasonable times during normal business hours.  In addition, Zale shall permit regulatory bodies having jurisdiction over Bank to visit its facilities related to the Program during normal business hours with advance notice.

(b)Each party’s obligations under (a) shall not be required to the extent that (i) such access is prohibited by Applicable Law, (ii) such records are legally privileged, or (iii) such records are planning documents or those of any of its Affiliates, operating budgets, management reviews or employee records.

5.4Each Party’s Business.  Each party shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence (or analogous business form) and to comply with all Applicable Laws in connection with its business (and, in the case of Zale, the sale of Goods and/or Services), including, but not limited to: (i) compliance with all applicable license requirements related to its business, and (ii) fulfilling its obligations under the Program.  Zale shall provide to Bank, annually, a forecast of the next year in terms of

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Zale’s total sales, number of stores or other locations (including number and location of openings and/or closings), and expansion or contraction of any Sales Channels.

5.5Insurance.  Each party shall maintain insurance policies with insurers, and in such amounts and against such types of loss and damage, as are customarily maintained by other companies engaged in similar businesses within such party’s industry.

5.6Sales Information.  Zale shall furnish to Bank on a monthly basis a report showing Zale’s total sales of Goods and/or Services, categorized by tender type.

5.7Business Continuation/Disaster Recovery Plan.  Each party shall maintain a plan designed to mitigate damages resulting from Force Majeure or other causes that would threaten operation of such party’s business and/or loss or exposure of information requiring protection as described in Sections 2.7 and 8.9.

5.8Compliance with Agreement and Operating Procedures.  Zale shall use commercially reasonable efforts to ensure that its Affiliates, licensees, franchises, officers, directors, associates and agents comply with the terms of this Agreement and the Operating Procedures.

5.9Protection Products.  Zale and its Affiliates shall not engage in any unfair, deceptive or abusive trade practices with respect to the Protection Products, and Zale shall ensure (i) that the Protection Products and any marketing or promotional material associated therewith are in compliance with all Applicable Law, except where the failure to comply, individually or in the aggregate, does not or will not have a material adverse effect on either party or the Program as a whole, (ii) that all marketing or promotional materials associated with the Protection Products reflect the actual terms and conditions of products and are not deceptive or misleading, (iii) that any employee compensation programs with respect to the Protection Products are structured such that they do not create incentives to provide inaccurate product information to consumers, and (iv) that all training programs, customer service scripts, manuals and operating procedures and controls used by telemarketing and customer service centers for the Protection Products have undergone a review process by Zale for compliance with all Applicable Law, except where the failure to comply, individually or in the aggregate, does not or will not have a material adverse effect on either party or the Program as a whole.

SECTION 6.  INDEMNIFICATION

6.1Indemnification Obligations.

(a)Each party shall be liable to and shall indemnify and hold harmless the other and its Affiliates and their respective officers, directors, employees, subcontractors and their successors and assigns (collectively “Indemnified Parties”) from any and all Losses (as hereinafter defined) incurred by them by reason of:  (i) the indemnifying party’s breach of any representation, warranty or covenant hereunder; (ii) the indemnifying party’s failure to perform its obligations hereunder; (iii) any action or failure to act (where there was a duty to act) by the indemnifying party related to the Program and/or as otherwise provided for in this Agreement; (iv) the indemnifying party having caused Losses to third parties, where such third parties have sought recovery from Indemnified Parties; and (v) the indemnified party’s defending against

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claims described in (iv).  In any case, the indemnifying party’s liability does not extend to Losses proximately arising from an act or failure to act by Indemnified Parties.  Without limiting the foregoing, additionally Zale shall indemnify Bank and its Indemnified Parties for any Losses caused by or related to (i) Goods and/or Services charged to an Account, other than as a result of routine credit losses, (ii) Zale’s misconduct under the Zale Program, (iii) Zale’s breach of the Zale Program Agreement, (iv) the Second Look Program (to the extent the provider of the Second Look Program is a party other than Bank), and (v) the Protection Products (and any promotional materials related thereto) offered by Zale and its Affiliates.  Without limiting the foregoing, additionally Bank shall indemnify Zale and its Indemnified Parties for any Losses caused or related to violations or alleged violations of credit (including prohibitions against discriminating in the granting of credit), credit reporting and collection laws.

(b)For purposes of Section 2.8 and this Section 6 the term “Losses” shall mean any liability, damage, costs, fees, losses, judgments, penalties, fines, and expenses, including without limitation, any reasonable attorneys’ fees, disbursements, settlements (which require the other party’s consent which shall not be unreasonably withheld), and court costs, reasonably incurred by Bank, Zale, or a third-party, as the case may be, without regard to whether or not such Losses would be deemed material under this Agreement; provided, however, that Losses shall not include any overhead costs that either party would normally incur in conducting its everyday business.

6.2LIMITATION ON LIABILITY.

(a)IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR (i) ANY INCIDENTAL, INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL LOSSES; OR (ii) LOST BUSINESS RELATIONSHIPS/OPPORTUNITIES WITH THIRD PARTIES, THAT THE OTHER PARTY INCURS OR CLAIMS TO HAVE INCURRED ARISING OUT OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL NOT APPLY WITH RESPECT TO A PARTY’S INTENTIONAL BREACH OF THIS AGREEMENT OR ITS WILLFUL MISCONDUCT OR GROSS NEGLIGENCE.  IN THE EVENT OF A BREACH OF THIS AGREEMENT BY BANK, THE PARTIES AGREE THAT DIRECT DAMAGES SHALL INCLUDE (AND CLAUSE (II) ABOVE SHALL NOT LIMIT) THE GROSS MARGIN LOST RESULTING DIRECTLY OR PROXIMATELY FROM ANY SALES LOST (FOR SIMILAR TRANSACTIONS DURING A SIMILAR TIME PERIOD) AS A RESULT OF SUCH BREACH.

(b)NEITHER PARTY’S TOTAL CUMULATIVE LIABILITY TO THE OTHER PARTY FOR ALL LOSSES INCURRED BY IT, FOR ANY CAUSE WHATSOEVER, SHALL EXCEED ███████████████████████████████; PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL NOT APPLY WITH RESPECT TO THE OTHER PARTY’S INTENTIONAL BREACH OF THIS AGREEMENT OR ITS WILLFUL MISCONDUCT OR GROSS NEGLIGENCE.

6.3NO WARRANTIES.  EXCEPT AS PROVIDED HEREIN, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF

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MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, RESPECTING THE SERVICES AND/OR OTHER PRODUCTS SOLD OR PROVIDED BY BANK PURSUANT TO THIS AGREEMENT.

6.4Notification of Indemnification; Conduct of Defense.

(a)In no case shall the indemnifying party be liable under Section 6.1 of this Agreement with respect to any claim or claims made against the indemnified party or any other person so indemnified unless it shall be notified in writing of the nature of the claim within a reasonable time after the assertion thereof.  However, failure to so notify the indemnifying party shall not relieve it from any liability which it may have under other provisions of this Agreement, except to the extent that the indemnifying party’s right to defend the matter is materially and irrevocably prejudiced by such failure to give prompt notice.

(b)The indemnifying party shall be entitled to participate, at its own expense, in the defense of any suit brought against the Indemnified Parties which gives rise to a claim against the indemnifying party.  Alternatively, the indemnifying party may elect to assume defense of such claim, but must do so within a reasonable time after receiving notice of the claim.  However, if the indemnifying party so elects to assume the defense, such defense shall be conducted by counsel chosen by the indemnifying party and approved by the Indemnified Parties (or the person or persons so indemnified, who are the defendant or defendants in any suit so brought), which approval shall not be unreasonably withheld or delayed.  Once the indemnifying party has retained counsel approved by the indemnifying party, the indemnifying party (or the person or persons so indemnified who are the defendant or defendants in the suit), shall bear the fees and expenses of any additional counsel it chooses to retain.

SECTION 7.  TERM, EXPIRATION AND TERMINATION

7.1Term and Expiration.  See Schedule 7.1.

7.2Termination with Cause by Bank; Bank Termination Events.  Any of the following conditions or events shall constitute a “Bank Termination Event” hereunder, and Bank may terminate this Agreement immediately without further action if such Bank Termination Event occurs:

(a)If Zale shall:  (i) generally not pay its debts as they become due; (ii) file, or consent by answer or otherwise to the filing against it, of a petition for relief, reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction; (iii) make an assignment for the benefit of its creditors; (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property; (v) be adjudicated insolvent or be liquidated; (vi) take corporate action for the purpose of any of the foregoing and such event shall materially adversely affect the ability of Zale to perform under this Agreement or the Program; (vii) have a materially adverse change in its financial condition if the adverse change is likely to materially adversely affect the ability of Zale to perform under this Agreement or the Program; or (viii) receive an adverse opinion by its auditors or accountants and/or a

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negative opinion by same as to Zale’s viability as a going concern that is likely to materially adversely affect the ability of Zale to perform under this Agreement or the Program; or

(b)If a court or government authority of competent jurisdiction shall enter an order appointing, without consent by Zale, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding up or liquidation of Zale, or if any petition for any such relief shall be filed against Zale and such petition shall not be dismissed within sixty (60) days; or

(c)If Zale shall default in any material respect in the performance of or compliance with any term or violates any of the covenants, representations, warranties or agreements contained in this Agreement and Zale shall not have remedied such default within thirty (30) days after written notice thereof shall have been received by Zale from Bank; or

(d)If Bank exercises its rights under Section 8.6, Force Majeure; or

(e)If any regulatory body having jurisdiction over Bank or other governmental action directs or causes Bank to cease or materially limit performance of the activities and services contemplated by this Agreement such that the Program as a whole, following commercially reasonable mitigation efforts by Bank and Zale, will be materially adversely affected.  Furthermore, a termination pursuant to this clause attributable solely to Bank’s banking practices, rather than the prohibition of banks generally in performing such activities and services, shall constitute a breach of this Agreement.

7.3Termination with Cause by Zale; Zale Termination Events.  Any of the following conditions or events shall constitute a “Zale Termination Event” hereunder, and Zale may terminate this Agreement immediately without further action if such Zale Termination Event occurs:

(a)If Bank shall:  (i) generally not be paying its debts as they become due; (ii) file or consent by answer or otherwise to the filing against it, of a petition for relief, reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction; (iii) make an assignment for the benefit of its creditors; (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers for itself or of any substantial part of its property; (v) be adjudicated insolvent or be liquidated; or (vi) take corporate action for the purpose of any of the foregoing and such event shall materially adversely affect the ability of Bank to perform under this Agreement or the operation of the Program and such event shall materially adversely affect the ability of Bank to perform under this Agreement or the Program; or (vii) have a materially adverse change in its financial condition, including, but not limited to being downgraded by a rating agency to a rating below an investment grade rating that is likely to materially adversely affect the ability of Bank to perform under this Agreement or the Program; or (viii) receive an adverse opinion by its auditors or accountants as to its viability as a going concern that is likely to materially adversely affect the ability of Bank to perform under this Agreement or the Program; or (ix) breach or fail to perform or observe any covenant or other term contained in

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any creditor loan agreement, debt instrument or any other material agreement to which it is bound, which breach or failure, if left uncured could result in a default of such agreement and such default shall materially adversely affect the ability of Bank to perform under this Agreement or the Program; or

(b)If a court or government authority of competent jurisdiction shall enter an order appointing, without consent by Bank, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding up or liquidation of Bank, or if any petition for any such relief shall be filed against Bank and such petition shall not be dismissed within sixty (60) days; or

(c)Except with respect to the Service Standards, if Bank shall default in any material respect in the performance of or compliance with any term or violates in any material respect any of the covenants, representations, warranties or agreements contained in this Agreement and Bank shall not have remedied such default within thirty (30) days (five (5) days in the case of failure to pay Zale pursuant to Section 3.3(a)) after written notice of the default thereof shall have been received by Bank from Zale; or

(d)If Bank fails to perform (i) █████████████████████████████████████████████████████████████████████████████████████; or (ii) █████████████████████████, and such failure is not the result of an act of Zale, or as a result of a force majeure event specified in Section 8.6, and Bank fails to remedy such failure within █████████ after receipt of written notice from Zale (For purposes of calculating the number of failures pursuant to this Section 7.3 (d), multiple failures traced to a single root cause shall be counted as a single failure); or

(e)If Bank’s total cumulative liability to Zale under this Agreement shall exceed █████████ as set forth in Section 6.2(b) and Bank is unwilling to pay the additional amounts to Zale; or

(f)If Zale exercises its rights under Section 8.6, Force Majeure.

7.4Purchase of Accounts.  See Schedule 7.4.

SECTION 8.  MISCELLANEOUS

8.1Entire Agreement; Amendment; No Waiver; Severability; Counterparts; Captions and Cross References; Mutual Drafting.  This Agreement constitutes the entire Agreement and supersedes all prior representations, proposals, offers, agreements and understandings, whether oral or written, among the parties hereto with respect to the subject matter hereof and merges all prior discussions between them.  Except as otherwise provided for in this Agreement, the provisions herein may be modified only upon the mutual agreement of the parties, however, no such modification shall be effective until reduced to writing and executed by the parties.  No waiver of the provisions hereto shall be effective unless in writing and shall not be deemed to be a continuing waiver unless expressly so stated in writing.  No failure or delay on the part of any

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party in exercising any power or right under this Agreement shall be deemed to be a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right.  If any of the provisions or parts of the Agreement are determined to be illegal, invalid or unenforceable in any respect, such provisions or parts shall be deemed omitted without affecting any other provisions or parts of the Agreement which shall remain in full force and effect.  This Agreement may be signed in one or more counterparts, all of which shall be taken together as one agreement.  The table of contents and various captions in this Agreement are included for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement.  References in this Agreement to any Section are to such Section of this Agreement.  This Agreement is the joint product of Zale and Bank and each provision hereof has been subject to mutual consultation, negotiation and agreement of Zale and Bank; therefore to the extent any language in this Agreement is determined to be ambiguous, it shall not be construed for or against any party based on the fact that either party controlled the drafting of the document.

8.2Coordination of Public Statements.  Except as required by Applicable Law, including, without limitation, any SEC filings reasonably deemed by a party to be required (in which case the party making such filing will provide notice thereof to the other, in advance whenever possible, and shall when practicable redact such information as either party identifies as entitled to confidential treatment under the rules of the SEC), no party will make any public announcement of the Program or provide any information concerning the Program to any representative of any news, trade or other media without the prior approval of the other party, which approval will not be unreasonably withheld or delayed.  No party will respond to any inquiry from any public or governmental authority, except as required by Applicable Law, concerning the Program without prior consultation and coordination with the other party.  Upon Bank’s reasonable request and expense from time to time, Zale shall provide references or participate in marketing campaigns or testimonial initiatives for Bank regarding the services provided by Bank in connection with the Program.

8.3Successors and Assigns.  This Agreement and all obligations and rights arising hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors, transferees and assigns.  Any party may assign its rights and obligations under this Agreement.  In the event that Zale sells, transfers or otherwise disposes of all or substantially all of its assets, it shall cause the purchaser to assume this Agreement and upon such assumption the terms of this Agreement shall be binding upon such purchaser (regardless of whether or not such entity is a parent, Affiliate, or party with some other relationship of the kind with Zale, and regardless of under what name the business is conducted).  Notwithstanding the foregoing, Bank shall not assign its rights and obligations under this Agreement unless the assignee has the financial resources to fulfill Bank’s obligations under this Agreement.

8.4Notices.  All communications and notices pursuant hereto to either party shall be in writing and addressed or delivered to it at its address shown below, or at such other address as may be designated by it by notice to the other party, and shall be deemed given when delivered by hand, or two (2) Business Days after being mailed (with postage prepaid) or when received by receipted courier service:

If to Bank: If to Zale Delaware:

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Comenity Capital Bank 2795 E. Cottonwood Parkway, Suite 100 Salt Lake City, UT 84121 Attn.: President With a Copy to: Attn.: Law Department With a Copy to: Pepper Hamilton LLP 1313 Market Street, Suite 5100 P.O. Box 1709 Wilmington, DE 19899-1709 Attn.: Richard P. Eckman, Esq. (302) 777-6560 (302) 397-2707 (fax) eckmanr@pepperlaw.com Zale Delaware, Inc. 901 W. Walnut Hill Lane Irving, TX 75038-1003 Attn.: President If to Zale PR: Zale Puerto Rico, Inc. 901 W. Walnut Hill Lane Irving, TX 75038-1003 Attn.: President With a Copy to: Attn.: General Counsel

8.5GOVERNING LAW / WAIVER OF JURY TRIAL.  THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL, SUBSTANTIVE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE DICTATES OF THE CONFLICTS OF LAW PROVISIONS OF DELAWARE OR ANY OTHER JURISDICTION, AND THE PARTIES HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION AND VENUE IN THE UNITED STATES FEDERAL DISTRICT COURT FOR THE DISTRICT OF DELAWARE OR ANY OF THE STATE COURTS LOCATED IN WILMINGTON, DELAWARE.  BY WAY OF CLARIFICATION, THE PARTIES RECOGNIZE AND AGREE THAT THE PROGRAM ITSELF, INCLUDING WITHOUT LIMITATION ALL MATTERS RELATED TO THE ACCOUNTS, THE CREDIT CARD AGREEMENT AND THE FORMS, TO THE EXTENT RELATED TO THE RELATIONSHIP BETWEEN THE CARDHOLDERS AND BANK, SHALL BE GOVERNED BY UTAH LAW.  EACH PARTY HEREBY WAIVES ITS RIGHT TO A JURY TRIAL.

8.6Force Majeure.  No party will be responsible for any failure or delay in performance of its obligations under this Agreement because of circumstances beyond its reasonable control, and not due to the fault or negligence of such party, including, but not limited to, acts of God, flood, criminal acts, fire, riot, computer viruses or hackers where such party has utilized commercially reasonable means to prevent the same, accident, strikes or work stoppage, embargo, sabotage, terrorism, inability to obtain material, equipment or phone lines, and other causes whether or not of the same class or kind as specifically named above.  In the event a party is unable to perform substantially for any of the reasons described in this Section, it will notify the other party promptly of its inability so to perform, and if the inability continues for at least one-hundred eighty (180) consecutive days (thirty (30) days in the cases of credit authorizations and processing of new Accounts), the party so notified may then terminate this Agreement forthwith.  This provision shall not, however, release the party unable to perform from using its

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best efforts to avoid or remove such circumstance and such party unable to perform shall continue performance hereunder with the utmost dispatch whenever such causes are removed.

8.7Survival.  No termination or expiration of this Agreement shall in any way affect or impair the powers, obligations, duties, rights, indemnities, liabilities, covenants or warranties and/or representations of the parties with respect to times and/or events occurring prior to such termination or expiration.  No powers, obligations, duties, rights, indemnities, liabilities, covenants or warranties and/or representations of the parties with respect to times and/or events occurring after termination or expiration shall survive termination or expiration except for the following Sections and their corresponding schedules: Section 2.9, Section 2.10, Section 3.3, Section 3.4, Section 3.5, Section 3.6, Section 3.7, Section 3.8, Section 6, Section 7.4, Section 8.4, Section 8.5, Section 8.6, Section 8.9 and Section 8.10.

8.8Relationship of Parties; Third Parties; Independent Contractor.  This Agreement does not constitute the parties as partners or joint venturers and no party will so represent itself.  The provisions of this Agreement are for the benefit of the parties hereto and not for any other person or entity.  The parties hereby declare and agree that Bank is engaged in an independent business, and shall perform its obligations under this Agreement as an independent contractor; that any of Bank’s personnel performing the services hereunder are agents, employees, Affiliates, or subcontractors of Bank and are not agents, employees, Affiliates, or subcontractors of Zale; that Bank has and hereby retains the right to exercise full control of and supervision over the performance of Bank’s obligations hereunder and full control over the employment, direction, compensation and discharge of any and all of the Bank’s agents, employees, Affiliates, or subcontractors, including compliance with workers’ compensation, unemployment, disability insurance, social security, withholding and all other federal, state and local laws, rules and regulations governing such matters; that Bank shall be responsible for Bank’s own acts and those of Bank’s agents, employees, Affiliates, and subcontractors; and that except as expressly set forth in this Agreement, Bank does not undertake by this Agreement or otherwise to perform any obligation of Zale, whether regulatory or contractual, or to assume any responsibility for Zale’s business or operations.

8.9Confidentiality and Security Control.

(a)Confidential Information and Other Protected Information.  Except as specifically provided in this Section 8.9 or contemplated by Section 8.2, no party shall disclose any Confidential Information (defined below) which it learns as a result of negotiating or implementing this Agreement.  Additionally, the use and/or disclosure of any Consumer Personal Information, Zale Customer Information, and/or Bank Cardholder Information shall be subject to Applicable Law, Section 2.7, and this Section 8.9. “Confidential Information” shall mean information not of a public nature concerning the business or properties of the other party including, without limitation: the terms and conditions of this Agreement (as well as proposed terms and conditions of any amendments, renewals, or extensions of this Agreement), sales volumes, test results, and results of marketing programs, Program reports and files generated by Bank (in the case of Bank), trade secrets, business and financial information, source codes, business methods, procedures, know-how and other information (including but not limited to intellectual property) of every kind that relates to the business of any party.

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However, the definition of “Confidential Information” specifically excludes information which:

(i)is generally known to the trade or to the public at the time of such disclosure; or

(ii)becomes generally known to the trade or the public subsequent to the time of such disclosure; provided, however, that such general knowledge is not the result of a disclosure in violation of this Section 8.9; or

(iii)is obtained by a party from a source other than the other party, without breach of this Agreement or any other obligation of confidentiality or secrecy owed to such other party or any other person or organization; or

(iv)is independently conceived and developed by the disclosing party and proven by the disclosing party through tangible evidence not to have been developed as a result of a disclosure of information to the disclosing party, or any other person or organization which has entered into a confidential arrangement with the non-disclosing party.

(b)Permitted Uses and Disclosures.  Nothing in this Section 8.9 shall be interpreted to mean that a party is restricted with respect to the use or disclosure of Confidential Information which it owns.  The parties may also disclose any Consumer Personal Information or Confidential Information under the following circumstances.  First, to the extent disclosure is required by Applicable Law.  Second, to the extent disclosure is both permitted by Applicable Law and either necessary for the performance of the disclosing party’s obligation under this Agreement and/or agreed to in writing by the other party, provided that:  (i) prior to disclosing any such information to any third party, the party making the disclosure (to the third party) shall give notice to the other party of the nature of such disclosure and of the fact that such disclosure will be made; and (ii) prior to filing a copy of this Agreement (whole or partial) with any governmental authority or agency, the filing party will consult with the other party with respect to such filing and shall redact such portions of this Agreement which the other party requests be redacted, unless, in the filing party’s reasonable judgment based on the advice of its counsel (which advice shall have been discussed with counsel to the other party), the filing party concludes that such request is inconsistent with the filing party’s obligations under Applicable Law.  Notwithstanding anything to the contrary in this Agreement, Bank may disclose Confidential Information in order to facilitate and/or maintain Bank’s securitization activities.

(c)Protecting Disclosed Information.  When, pursuant to subsection (b) above, one party discloses the other party’s Confidential Information or Consumer Personal Information to the disclosing party’s Affiliate or a third-party, the disclosing party shall be responsible for ensuring that such disclosure complies with Applicable Law.  Furthermore, the disclosing party shall ensure that the Affiliate or third-party executes a confidentiality agreement with the disclosing party provided by or approved in writing by the non-disclosing party, or, in the event Bank Confidential Information is to be disclosed to a Zale consultant and/or a potential purchaser of the Portfolio as described in Schedule 7.4, such confidentiality agreement shall be executed by both Bank and the recipient of the Bank Confidential Information, and in either event the confidentiality agreement shall require that the recipient of Confidential Information

27

keeps all such information in confidence.  Each party covenants that at all times it shall have in place procedures designed to assure that each of its employees who is given access to the other party’s Consumer Personal Information or Confidential Information shall protect the privacy of such information.  Each party acknowledges that any breach of the confidentiality provisions of this Agreement by it will result in irreparable damage to the other party and therefore in addition to any other remedy that may be afforded by law any breach or threatened breach of the confidentiality provisions of this Agreement may be prohibited by restraining order, injunction or other equitable remedies of any court.

(d)Protecting Stored Information.  Each party shall establish commercially reasonable controls to ensure the confidentiality of any Consumer Personal Information and the other’s Confidential Information.  Each party shall also ensure that such information is not disclosed contrary to the provisions of this Agreement, or any applicable privacy, security or other laws, rules, and regulations.  Without limiting the foregoing, each party shall implement such physical and other security measures as are necessary to (i) ensure the security and confidentiality of any Consumer Personal Information and the other’s Confidential Information, (ii) protect against any threats or hazards to the security and integrity of such information, (iii) protect against any unauthorized access to or use of such information, and (iv) properly dispose of any Consumer Personal Information as required under Applicable Law.  Each party shall promptly notify the other party in the event it believes, or has reason to believe, that a confidentiality or security breach, or any other unauthorized intrusion, has occurred with respect to Consumer Personal Information.  Each party shall estimate the intrusion’s affect on the other party and shall specify the corrective action taken and to be taken by specifying party.

(e)If, upon expiration or termination of this Agreement, Zale or its designee does not purchase the Accounts from Bank as set forth in Schedule 7.4, Zale shall take appropriate measures to destroy or remove from its systems Bank’s Cardholder, Confidential, and Consumer Personal Information that is not also Zale Customer Information.  This includes but is not limited to any and all records regarding Cardholders, whether in paper, electronic, or other form, that is maintained or otherwise possessed by or on behalf of Zale, including a compilation of such records.  If Zale or its designee does purchase the Accounts at such time, Zale’s obligation to remove or destroy information shall apply only to any Bank Confidential Information that is not comprised of Bank Cardholder Information or Consumer Personal Information.

8.10Taxes.  The parties agree to cooperate with each other to minimize any applicable sales, use, or similar tax and, in connection therewith, the parties shall provide each other with any relevant tax information as reasonably requested (including without limitation, resale or exemption certificates, multi-state exemption certificates, information concerning the use of assets, materials and notices of assessments).  All amounts set forth in this Agreement are expressed and shall be paid in lawful U.S. dollars.  Zale shall be entitled at its sole cost to file claims and recover refunds and credits of sales and use tax by any taxing authority in connection with a Purchase that has been charged back to Zale or written off by Bank (including without limitation Purchases related to the Converted Accounts), and all allowable interest relating thereto (a “Sales Tax Refund”).  After the Program Launch Date, Bank agrees to provide to Zale on a monthly basis a list of such losses by state, together with an aggregate list of the subject

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Accounts, balances, unpaid charges and fees for Accounts that have been charged off or written off during the prior month by ZIP code, as well as an overall recovery rate, which may be used by Zale in connection with the Program solely to enable Zale to obtain said refunds and credits from a taxing jurisdiction, subject to the confidentiality obligations set forth in Section 8.9.  After the Program Launch Date, in the event that Zale is required to provide additional information to a governmental agency, Bank agrees to provide first and last name, city, state, ZIP code, unpaid charges and fees, write off date and write off amount.  The parties agree that Zale may retain one hundred percent (100%) of any amount obtained from a taxing authority for such a Sales Tax Refund and Bank shall not apply for any such Sales Tax Refunds.

[Signature block on following page.]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement in manner and form sufficient to bind them as of the date first above written.

ZALE DELAWARE, INC.	COMENITY CAPITAL BANK
By:	By:
Printed Name	Printed Name
Title	Title
ZALE PUERTO RICO, INC.
By:
Printed Name
Title

[Signature Page — Private Label Credit Card Program Agreement]

SCHEDULE 1.2

Definitions and Other Obligations

A.DEFINITIONS

As used herein and unless otherwise required by the context, the following terms shall have the following respective meanings.

“Account” shall mean an individual open-end revolving line of credit which is (i) established by Bank for a Customer pursuant to the terms of a Credit Card Agreement, and (ii) marketed with a Zale Mark (or if such Account is opened by Bank pursuant to the current Zale Second Look Program, a trademark, service mark, or name owned by or licensed (and capable of being sublicensed) by Bank or Zale and designated by Bank or Zale for use in connection with such Account).  As a point of clarification, once the Purchase Date has occurred, “Account” shall include, without limitation, the Converted Accounts.

“Account Center” shall mean an electronic customer service system Bank makes available on a Bank website.

“Accounts Receivable” shall mean, as to any Account at the time of reference, any and all amounts owing on such Account (whether or not posted or billed to an Account).

“Affiliate” shall mean with respect to a party any entity that is owned by, owns, or is under common control with such party.

“Applicable Law” shall mean any applicable federal, state or local law, rule, or regulation, including but not limited to formal or informal direction from Bank’s primary banking regulator(s).

“Applicant” shall mean an individual who is a Customer and applies for an Account under the Program.

“Application Procedure(s)” shall mean, as applicable, Bank’s proprietary application procedures in which Applicant information is communicated to Bank in a form and through a process determined by Bank.  Application Procedures include but are not limited to Bank’s instant credit, quick credit, online prescreen, batch prescreen, automated telephone, take-one, web and mobile application procedures, each of which is more specifically described in the Operating Procedures.

“Average Accounts Receivable” shall mean, for each Program Period, the sum of the month-end Accounts Receivable for each month in such Program Period divided by the number of months ended in such Program Period.

“Bank Mark” shall mean a trademark, service mark, or name owned by or licensed (and capable of being sublicensed) to Bank and designated by Bank to Zale for use in connection with the Program.

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“Business Day” shall mean any day, except Saturday, Sunday, federal holidays or a day on which banks in Utah are required to be closed.

“Cardholder” shall mean any natural person to whom an Account has been issued by Bank and/or any authorized user of the Account.  As a point of clarification, once the Purchase Date has occurred, “Cardholder” shall include, without limitation, the Converted Cardholders.

“Consumer Personal Information” shall mean that non-public personal information regarding Applicants, Customers, and Cardholders, including but not limited to Account information, consumer reports, and information derived from consumer reports, that is subject to protection from publication under Applicable Law.

“Conversion” shall mean the conversion to the Bank’s credit card operations platform of all those Converted Accounts that are sold to Bank under the terms of the Portfolio Purchase and Sale Agreement.

“Conversion Date” shall mean the date on which the Conversion takes place, which shall be no later than 240 days after the Program Launch Date.

“Converted Accounts” shall mean those Zale Program Accounts sold to Bank under the terms of the Portfolio Purchase and Sale Agreement (i) with a fair market value of at or below par and (ii) that do not fall into a category listed in Schedule 2.5(d).

“Converted Cardholders” shall mean the Zale Program Cardholders who have Converted Accounts.

“Credit Card” shall mean the credit card issued by Bank to Cardholders, corresponding to a related Account for the purpose of purchasing Goods and/or Services pursuant to this Agreement.

“Credit Card Agreement” shall mean the open-end revolving credit agreement between a Cardholder and Bank governing the Account and Cardholder’s use of the Credit Card, together with any modifications or amendments which may be made to such agreement.

“Credit Sales Day” shall mean any day, whether or not a Business Day, on which Goods and/or Services are sold by Zale through its Sales Channels.

“Customer” shall mean any individual consumer who is a customer or potential customer of Zale.

“Discount Fee” shall have the meaning set forth in Part C of Schedule 1.2.

“Discount Rate” shall have the meaning set forth in Part C of Schedule 1.2.

“Effective Date Products and Services” shall mean those products and services set forth on Schedule 2.1.

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“Financial Products” shall mean credit card, credit issuance or payment processing arrangements, or other programs similar in purpose to those components of the Program dealing with the extension of credit and repayment of debt extended to Customers as contemplated under this Agreement, including cardless, Internet-based or Internet-only payment vehicles and contactless payment vehicles to be used as devices and/or methods by Customers to purchase Goods and/or Services.

“Flex Fund” shall have the meaning set forth in Schedule 2.6(b).

“Goods and/or Services” shall mean those goods and/or services sold at retail by Zale through its Sales Channels to the general public for individual, personal, family or household use.

“Initial Term” shall have the meaning set forth in Schedule 7.1.

“Instant Credit” shall mean an Application Procedure designed to open Accounts whereby the application information is communicated to Bank either (i) verbally at Point of Sale; or (ii) systemically during the order entry process.

“IVR” shall mean an interactive voice response system and/or procedure.

“Launch Date Products and Services” shall mean those products and services set forth on Schedule 2.2(j).

“Mobile” shall mean an Application Procedure designed to open Accounts whereby the application information is communicated to Bank by way of a mobile telephone, tablet or other mobile device.

“Net Proceeds” shall mean Purchases:  (i) less credits to Accounts for the return or exchange of Goods, or a credit on an Account as an adjustment by Zale for goodwill or for Services rendered or not rendered by Zale to a Cardholder, all as shown in the Transaction Records (as corrected by Bank in the event of any computational error), calculated each Business Day; (ii) less payments from Cardholders received by Zale from Cardholders on Bank’s behalf; (iii) less/plus any applicable Discount Fees in effect on the date of calculation; and (iv) plus or minus, as applicable, any other amounts owed to or by Bank pursuant to this Agreement.

“Net Sales” shall mean Purchases, less credits or refunds (including, without limitation, for merchandise returns to Zale) for Goods and/or Services, all as shown in the Transaction Records (as corrected by Bank in the event of any computational error), calculated each Business Day.

“OLPS” shall mean an Application Process where Bank’s offer of credit is made to certain Customers pre-qualified by Bank (per its criteria), in a real-time pre-approved manner, at the POS at the time of a transaction.

“Operating Committee” shall have the meaning set forth in Schedule 2.2(i).

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“Operating Procedures” shall mean Bank’s instructions and procedures regarding the Program as written by Bank and provided to Zale to be followed by Zale.

“Person” shall mean any natural person, corporation, business trust, joint venture, association, company, partnership, limited liability company, joint stock company, corporation, statutory trust, trust, unincorporated organization or governmental authority or agency thereof.

“Point of Sale” or “POS” shall mean the physical or electronic location at which transactions (sales, credits, and returns) take place.  This includes but is not limited to a cash register, point of order entry, or website (as applicable).

“Portfolio” shall have the meaning set forth in Schedule 7.4.

“Portfolio Purchase and Sale Agreement” shall mean the agreement between Bank (as buyer) and the current owner of the Zale Program Accounts (as seller) for the purchase by Bank of all the Converted Accounts, the terms and conditions of which are more fully described in Schedule 2.12.

“Program” shall mean the private label credit card plan established and administered by Bank for Customers by virtue of this Agreement.

“Program Documents” shall mean the Forms and Collateral.

“Program Launch Date” shall have the meaning set forth in Schedule 1.3.

“Program Period” shall mean all Program Years (if measured annually) or all Program Quarters (if measured quarterly) to date.

“Program Quarter” shall mean each consecutive three (3) month period commencing on the start of the first Program Year and each anniversary thereof.

“Program Year” shall mean each consecutive twelve (12) month period commencing on the Program Launch Date or the first day of the first full calendar month following the Program Launch Date if the Program Launch Date is not the first day of a calendar month and each anniversary thereof.

“Promotional Program” shall mean any special Cardholder payment terms approved by Bank for certain Purchases, including without limitation any Purchases not made pursuant to regular revolving credit terms.  The initial Promotional Programs, if any, are set forth in Part C of Schedule 1.2.

“Promotional Program Purchases” shall mean Purchases which are subject to any Promotional Program.

“Protection Products” shall have the meaning set forth in Schedule 2.8(b).

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“Purchase” shall mean a purchase of Goods and/or Services, including without limitation all applicable taxes and shipping costs, with a specific extension of credit by Bank to a Cardholder using an Account as provided for under this Agreement.

“Purchase Date” shall mean the earlier of (i) the date on which the Bank (x) purchases the Converted Accounts pursuant to the Portfolio Purchase and Sale Agreement and (y) takes assignment of the Zale Program Agreement from the current issuer of the Zale Program Accounts or (ii) the date on which the Bank purchases the Converted Accounts pursuant to the Portfolio Purchase and Sale Agreement, which shall be no later than October 1, 2015.

“Quick Credit” shall mean an in-store Application Procedure designed to open Accounts as expeditiously as possible at the Point of Sale, whereby an application for an Account might be processed without a paper application being completed by an Applicant.  An Applicant’s credit card (Visa, MasterCard, American Express, Discover or other Bank approved private label card) is electronically read by a terminal to identify certain information to facilitate a credit analysis. Other data shall be entered into that same terminal by a Zale’s associate as specified in the Operating Procedures.

“Quick Qualify” shall mean an in-store Application Procedure whereby Customers proactively seek pre-qualification status for an Account by providing their name and address, and pre-qualified Customers by the Bank (per its criteria) are provided with an initial credit limit for the Account.  Once the Customer decides to make a purchase, the Account can be opened with the assistance of a Zale’s associate as specified in the Operating Procedures.

“Rates and Fees” shall mean those Cardholder terms and conditions regarding rates and fees as are initially set forth in Schedule 3.3(d), as amended from time to time pursuant to Section 3.3(d).

“Regular Revolving Purchases” shall mean Purchases which are not subject to any Promotional Program.

“Renewal Term” shall have the meaning set forth in Schedule 7.1.

“Sales Channels” shall mean those certain U.S. sales channels through which Zale sells its Goods and/or Services during the Term, regardless of what name Zale uses for such sales channels, including (as applicable) but not limited to: (i) retail locations which are owned and operated by Zale or Zale’s Affiliates or Zale’s licensees or franchisees, (ii) Zale’s websites; and (iii) Zale’s catalogs.

“Sales Tax Refund” shall have the meaning set forth in Section 8.10.

“SEC” means the United States Securities and Exchange Commission.

“Second Look Program” shall mean any credit program that is available to Customers of Zale who have properly submitted Applications for an Account, and have been declined by Bank (each, a “ Qualifying Person “) immediately preceding the Customers’ application to any Second Look Program provider.  For the avoidance of doubt any Application that is approved and

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assigned an initial credit line consistent with the minimum credit lines provided by Bank for the Program as a whole shall not be considered a decline for the purposes of this definition.

“Service Standards” shall have the meaning set forth in Schedule 2.2(b).

“Special Program Accounts” shall have the meaning set forth in Schedule 2.10.

“Statemented Account” shall mean each Account for which a billing statement is generated (whether or not actually sent to the Cardholder) within a particular billing cycle.

“Take Ones” shall mean a paper application made available at or through Sales Channels (or otherwise).  An Applicant can complete and submit the Take-One application directly to Bank, or he or she may submit it to a Zale’s associate for submission to Bank (such as through the Instant Credit Application Procedure).

“Term” shall mean the Initial Term plus any Renewal Terms, as defined in Schedule 7.1.

“Transaction Record” shall mean the following, with respect to each Purchase or with respect to a credit or return related to a Purchase (as applicable), and each payment received by Zale from a Cardholder on Bank’s behalf:  (a) the charge slip or credit slip corresponding to the Purchase, credit or return, or copy thereof; or (b) a computer readable tape/cartridge or electronic transmission containing the following information: the Account number of the Cardholder, identification of the Zale’s Sales Channel (location) where the Purchase, credit or return was made (if applicable), the total of (i) the Purchase price of Goods or Services purchased or amount of the credit, as applicable, plus (ii) the date of the transaction, a description of the Goods or Services purchased, credited or returned and the authorization code, if any, obtained by Zale prior to completing the transaction; or (c) electronic record whereby Zale or one of its Sales Channels electronically transmits the information described in subsection (b) hereof to a network provider (selected by Zale at its expense), which in turn transmits such information to Bank by a computer tape/cartridge or electronic tape or transmission.

“Zale Deposit Account” shall mean the one (1) deposit account maintained by Zale and designated by it in writing to Bank as to which Bank should direct its payments.

“Zale Mark” shall mean a trademark, service mark, or name owned by or licensed (and capable of being sublicensed) to Zale and designated by Zale to Bank for use in connection with the Program.

“Zale Program” shall mean the existing private label credit account program in which Zale participates until the Purchase Date.  The Converted Accounts are a part thereof, and will be until the Purchase Date, when they will have been sold to Bank under the Portfolio Purchase and Sale Agreement.

“Zale Program Accounts” shall mean the existing private label credit accounts issued under the Zale Program.  By way of clarification, not all Zale Program Accounts shall be Converted Accounts.

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“Zale Program Agreement” shall mean the existing agreement between Zale and the current issuer of the Zale Program Accounts that are part of the Zale Program.

“Zale Program Cardholders” shall mean those Customers to whom Zale Program Accounts and Zale Program Credit Cards were issued.

“Zale Program Credit Cards” shall mean the private label credit cards issued to Zale Program Cardholders (each corresponding to a related Zale Program Account).

“Zale Second Look Program” shall mean any “second look” credit program offered under the Zale Program as set forth in the Zale Program Agreement.

“Zale Stores” shall mean retail locations (other than kiosks) which are owned and operated by Zale or Zale’s Affiliates or Zale’s licensees or franchisees.

B.OTHER DEFINITIONS.

As used herein, terms defined in the introductory paragraph hereof and in other sections of this Agreement shall have such respective defined meanings.  Defined terms stated in the singular shall include reference to the plural and vice versa.  The terms “shall” and “will” have the identical meaning (i.e., that something is compulsory and certain), and the use of one versus the other is not to be interpreted as implying less certainty or a sense of possibility or choice.

C.OTHER OBLIGATIONS

Discount Rates and other key terms related to Regular Revolving Purchases and Promotional Program Purchases are as set forth in the table and notes below.

I.DISCOUNT FEES ON REGULAR REVOLVING PURCHASES

On Regular Revolving Purchases, there shall be no Discount Fees.

II.DISCOUNT FEES/OTHER TERMS FOR PROMOTIONAL PROGRAM PURCHASES

The key terms (including Discount Rate and any adjustments thereto) for each Promotional Program are as indicated in the table below.  For any specific Promotional Program, Zale shall pay to Bank the Discount Fees in an amount equal to (i) Net Sales on Purchases under such Promotional Program, multiplied by (ii) the applicable Discount Rate (after making any appropriate adjustments).  Bank agrees that Zale has the discretion to charge to Cardholders an additional Promotional Program related fee per Promotional Program Purchase in accordance with Zale’s current practices, provided that Zale includes any disclosures required by Applicable Law and any additional Promotional Program related fee greater than ████████████████████████ shall be discussed by the Operating Committee prior to implementation.

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Promotional Period	Finance Charge	Benchmark Discount Rate	LIBOR Rate Adjustor
6 Months	Accrued at ████%	███%	██%
12 Months	Accrued at ████%	███%	██%
18 Months	Accrued at ████%	███%	██%
24 Months	Accrued at ████%	███%	██%
36 Months █████████████████	Assessed at ████%	███%	██%

LIBOR Rate Adjustments

For purposes of calculating LIBOR Rate related adjustments to the Benchmark Discount Rates for Promotional Programs set forth in the table above, the following will apply:

“Actual LIBOR Rate” means the “12 Month LIBOR Rate” applicable to U.S. Dollar denominations as published in the Wall Street Journal as of the Effective Date and thereafter on the last business day of each Program Quarter  (the “Day of Reference”) beginning with Program Quarter Two.  To the extent the 12 Month LIBOR Rate is no longer quoted in the Wall Street Journal, an alternate source which publishes the 12 month LIBOR rate applicable to U.S.  Dollar denominations and is mutually agreeable to both Zale and the Bank shall be selected and used prospectively.

“LIBOR Adjusted Discount Rates” shall mean those resulting from LIBOR related adjustments to the Benchmark Discount Rates in the table above.

“LIBOR Rate Range” shall be ████████

If, on any Day of Reference, the Actual LIBOR Rate is outside the LIBOR Rate Range, an adjustment shall be made for the next Program Quarter (upward or downward, as applicable) to the then current (meaning applicable in the Program Quarter just ended) Benchmark Discount Rate (or Libor Adjusted Discount Rate, as applicable).  Provided, however, that (i) there will be no adjustment of more than ████ in any one Program Quarter; and (ii) at no time will a LIBOR Adjusted Discount Rate of less than ███% be applicable, regardless of computations hereunder.

By way of clarification, the same calculation described in the first sentence of the paragraph above would be repeated at the beginning of each of the following Program Quarters.  The LIBOR Rate Range would remain constant.

Example 1: using the 6-month Benchmark Discount Rate in the table above, presume that at the end of some future Plan Quarter the LIBOR Rate was ██%. In that case, the LIBOR related adjustment that Benchmark Discount Rates would be calculated as follows:

██% minus ██% (nearer point on LIBOR Rate Range) = ██% x ██% = ██%,

██% + ██% (Benchmark Discount Rate) = ██%

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██% is the Adjusted Discount Rate for the 6-month Promotional Program for the next Plan Quarter.

Example 2: exact same facts, except the LIBOR Rate was ██%. In that case:

██% - ██% (nearer point on LIBOR Rate Range) = (██%) x ██% = (██%),

(██%) + ██% (Benchmark Promotional Program Discount Rate) = ██%

██% is the Adjusted Discount Rate for the 6-month Promotional Program for the next Plan Quarter.

The same calculation would be repeated at the end of each of the following Plan Quarters. The Benchmark Discount Rates and the LIBOR Rate Range would always be used as the reference points for calculations. In other words, the Adjusted Discount Rate applied in the Plan Quarter that had just ended would be irrelevant to calculations pertaining to the next Plan Quarter.

Note-1: All Promotional Program terms are subject to revision based on changes to Applicable Law (including regulatory requirements).

Note-2:  In the event changes to Applicable Law materially limit or prohibit Bank from charging any of the Rates and Fees set forth in Schedule 3.3(d), Bank shall have the right revise any of the Discount Fees set forth in this part C of Schedule 1.2.  Bank shall review the impact of any such changes with Zale prior to implementation.

III.  CERTAIN PAYMENTS

Within ten (10) days of the Effective Date of this Agreement, Bank shall pay to Zale an “Initial Payment” in the amount of Thirty-Eight Million Dollars ($38,000,000.00); provided, however, (i) if this Agreement is terminated for any reason before the Program Launch Date, Zale shall immediately refund in full to Bank the Initial Payment, and (ii) if this Agreement is terminated due to a Bank Termination Event on or after the Program Launch Date and prior to October 1, 2022, Zale shall immediately refund in full to Bank an amount equal to:  (the Initial Payment divided by the number of months from the Program Launch Date to October 1, 2022) times (the number of months remaining between the date this Agreement is terminated and October 1, 2022).

In the event that Zale’s total annual sales volume of Goods and/or Services does not reach at least ███████ by the end of the sixth month of Program Year Three, then █████████████████████████████████████████████████████████████████████████.

IV.  AMENDMENT AND RESTATEMENT OF ZALE PROGRAM AGREEMENT

The parties hereby agree, consent to and authorize that should the Purchase Date occur prior to October 1, 2015, and on such Purchase Date the Bank (x) purchases the Converted Accounts pursuant to the Portfolio Purchase and Sale Agreement and (y) takes assignment of the Zale Program Agreement from the current issuer of the Zale Program Accounts, such Zale Program

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Agreement shall at such time, and without the further action of any party thereto, be amended and restated in its entirety and shall be governed by the terms hereof.

V.  PROGRAM LAUNCH FUNDS

Within ten (10) days of the Program Launch Date, ████████████████████████ ██████████████████████████████████████████████████████ █████████████████████████████.

VI.  STORE PROMOTION LAUNCH FUNDS

Within ten (10) days of the Program Launch Date, █████████████ an amount equal to ██ for █████████████████ and an amount equal to ██ for ████████████████ (collectively, the “Store Promotion Launch Funds”).

VII.  PROSPECTING LISTS

From the Effective Date until the Conversion Date, Bank shall obtain for (and provide to) Zale a list of █████████████ of new Customer prospects.  Thereafter, within three (3) months after the start of each Program Year, Bank shall obtain for (and provide to) Zale a list of ████████ names, physical addresses, and email addresses (to the extent Bank has such information) of new Customer prospects.  The parties recognize that while the goal is to identify new prospects each year, there will be some duplication of names within each list and amongst different lists, and lists may contain names of some existing Cardholders, provided that such duplication or non-complying names shall not exceed more than █████████████ of the total.

VIII.  ANNUAL CUMULATIVE NET PORTFOLIO YIELD PAYMENT

Within ten (10) days after the end of each Program Year, ██████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

█████████████████████████████████████████:

████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

███████████████████████████████████████████████

████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

█████████████████████████████████████████████████████

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████████████████████████████████████████████████████████████████████████████

████

████████████████████████████████████████████████████████████████████████████

██████████████████████

█████████████████

████████████████████████████████████████████████

████████████████████████████████████████████████████████████████████████████

█████████████████████████

████████████████████████████████████████████████████████████████████████████

████████

█████████████████.

Once Bank has calculated the pre-tax profit net of target, Bank will multiply the amount by ███ and then subtract out any previous payments made to Zale for this profit share (payments for the Special Program Accounts will not apply here).  ██████████████████████████████████.

IX.  SPECIAL CIRCUMSTANCES

Either of the following events shall constitute a “Special Circumstance” hereunder:

(a)If at any time Zale’s total U.S. sales volume of Goods and/or Services during the prior twelve (12) month period decreases by more than █████████████; or

(b)If there are any changes in business practices of Zale whereby Zale no longer generates ████████████████████████████████ from the sale of fine jewelry and such change has a material adverse effect on this Agreement or the Program.

The parties’ intent with respect to this Schedule 1.2(C)(IX) is to address Bank’s concerns as to the viability of the Program and the Bank’s related financial interests upon the occurrence of a Special Circumstance. With such intent in mind, the parties hereby agree that promptly upon the occurrence of a Special Circumstance, Zale shall provide to Bank a written report that identifies the reasons for the Special Circumstance and the effect such Special Circumstance has on the viability of the Program and Bank’s related financial interests.  The Operating Committee will discuss the reasons for the occurrence of the Special Circumstance and how to proceed.  Should there be further deterioration in the Special Circumstance such that Bank has further concerns as to the viability of the Program and the Bank’s related financial interests therein, the Operating Committee will work in good faith to reach an agreement (within a reasonable period of time) as to how to proceed.  Such agreement shall involve establishing certain new financial metrics and pricing with respect to the Program (including, without limitation, adjusting the Profit Share and the Special Programs Yield Share and the formulas related thereto, the credit card terms, the discount rates and fees and the length of the Initial Term or any Renewal Term) or some other

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resolution agreed to by the parties in writing; provided, that if the Operating Committee does not reach such agreement, Bank shall still have ultimate discretion to implement such changes to address Bank’s concerns as to the viability of the Program and the Bank’s related financial interests therein.

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SCHEDULE 1.3

PROGRAM LAUNCH DATE

(i)	Subject to (ii) and (iii) below, the “Program Launch Date” shall be the same date as the Purchase Date.
(ii)	If this Agreement is terminated for any reason before the Purchase Date, Zale shall immediately refund in full to Bank the Initial Payment and there shall be no Program Launch Date (and thus no Program).
(iii)	If a Portfolio Purchase and Sale Agreement has not been entered into ███████████████████████████████████████████████ In such case, this Agreement shall terminate automatically without any further action by either party and Zale shall immediately refund in full to Bank the Initial Payment. This termination provision is in addition to those set forth in this Agreement, including without limitation Section 7.
(iv)	Bank shall not begin to accept applications for Accounts under the Program until the Program Launch Date; provided, that Bank shall accept applications for Accounts as part of Bank’s participation in the current Zale Second Look Program prior to the Program Launch Date.

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SCHEDULE 2.1

EFFECTIVE DATE PRODUCTS AND SERVICES

On the Effective Date, Bank shall provide the following products and services to Zale:

Advanced Analytics

████ designated, to the extent necessary dedicated,  resource for award-winning data analysis; customer segmentation development; custom modeling.

Customer Insights and Targeting (CIT)

Management and analysis of targeted list selection and testing setup for outgoing marketing campaigns, execution of customer account servicing activities, custom data file creation.

Field Sales

████ dedicated retail credit field sales experts to support Zale Jewelry Consultants and store operations leadership, ensuring successful card program launch and continued program maintenance.

Growth Analytics

Trend analysis on overall credit portfolio performance across the entire lifecycle; data-driven analytical insights and recommendations to drive the business and shape marketing strategies.

Integration Team

Operations and marketing resources dedicated to successful card program launch.

Market Research

Custom surveys; program benchmarking; value proposition refresh study; ad hoc customer research studies.

Multi-tender database

Multi-tender database that will provide a 360º view of the Zale customer.

Program Management, Sales Support

Operational support of production needs and program execution

SMS geofencing

Mobile tool sends SMS text messages to cardholders in a defined geographic area.

Social media

Monitoring and reporting of all Zale card program mentions on Facebook and Twitter.

SMS texting platform

Mobile messaging strategy consultation; platform set up and maintenance; campaign support and deployment production.

Value Proposition Optimization (VPO)

Research and analytics to produce the most relevant set of card benefits with an optimized ROI.

Zale Second Look Program

Participate in the current Zale Second Look Program.

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SCHEDULE 2.2(C)
CREDIT DECISIONS

a.If and when Bank determines that making changes in established credit criteria or risk management policies is appropriate, the provisions of this Schedule 2.2(c) shall apply.  Bank shall provide Zale with as much advance written notice as is reasonable under the circumstances, but shall at all times use good faith efforts to provide at least thirty (30) days prior written notice.  Subject to the time frame referenced in the immediately preceding sentence, the parties shall consider and resolve any such changes through the Operating Committee, in accordance with and subject to the escalation and resolution procedures set forth in Schedule 2.2(i).  The initial discussion of any such change by the Operating Committee shall occur within ten (10) Business Days following Zale’s receipt of the notice of such change from Bank.  Bank shall agree to any other earlier time frames necessitated by Bank not having been able to provide thirty (30) days prior notice. The notice provided by Bank to Zale shall include identification of what the changes will be and the date of implementation (or at least a best estimate as of the time of the notice).  Bank also shall provide its then current assessment of the impact of such changes on the Program, including Bank’s then current assessment of the impact of such changes on the minimum targets defined below in this Schedule 2.2(c) and on open to buy amounts on Accounts and Net Sales overall.

b.Bank shall not implement any changes to its credit criteria or risk management policies during October, November or December, except (i) as required to comply with a change in Applicable Law; or (ii) to implement a change that is necessary to avoid the Program being deemed unsafe or unsound as a result of a sudden and unforeseen event outside of Bank’s reasonable control; provided that Bank implements the same (in all material respects) change in a manner consistent with risk management and credit criteria applicable to other Bank portfolios (it being understood that the impact of such changes may vary among credit card programs). Bank’s risk-related actions on an existing Account shall be made based on the subject Cardholder’s specific performance on the Account and/or overall level of risk as reflected in a bureau-based credit score, and not solely on the performance on any account that is not an Account hereunder, regardless of whether such other account was issued by Bank under one of its different programs or by a Bank Affiliate.

c.Bank will use commercially reasonable efforts to satisfy agreed minimum targets for (i) Application Approval Rate and (ii) Average Initial Credit Limit, as described below in this Schedule 2.2(c).

i. For purposes of this Schedule 2.2(c), the term “Application Approval Rate” shall mean the figure, expressed as a percentage, for a rolling twelve (12) month calendar period, the total number of Valid Applications approved by Bank divided by the total number of Valid Applications, regardless of the method of submission, including in-store, Web or other application method utilized in connection with the Program but excluding pre-screened or pre-qualified, or Quick Qualify transactions.

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ii.	For purposes of this Schedule 2.2(c), “Valid Application” shall mean an application that is fully completed, submitted, and delivered to Bank, excluding: (a) any application categorized as pending, as a duplicate, as being fraudulent, or as being incomplete; and / or (b) any declined application due to non-compliance with Applicable Law. Additionally, the following prescreen applications will be excluded from the definition of Valid Application: (y) those prescreen applications for which Bank declines to make an offer of credit; and (z) those prescreen applications for which the Customer does not accept Bank’s offer of credit.
iii.	For purposes of this Schedule 2.2(c), the term “Average Initial Credit Limit” shall mean, on average for all Accounts, opened during a rolling twelve (12) month calendar period, the initial amount of the line of credit Bank extends to a Cardholder.
iv.	The parties agree that ██ shall be the minimum Application Approval Rate target; provided, that as a point of clarification, this target is meant to be ████ ██████████████████████████████████████████████.███████████.
v.	The parties agree that the Average Initial Credit Limit target shall be no less than ███████████████████████████████ for any Zale Fine Jewelry segment applicant and ██████████████████████ for any Zale kiosk segment applicant.
vi.	Bank will provide Zale reporting for each month by the fifteenth day of the following month detailing its performance over a rolling twelve (12) month calendar period, with respect to the Application Approval Rate and Average Initial Credit Limit targets (Bank to provide quarterly reporting by Credit Bureau Score bands beginning the First Program Quarter, detailing percentage of applications that fall within each such band). If Bank fails to meet the Application Approval Rate target or the Average Initial Credit Limit target, Bank will also provide Zale a report detailing the reason(s) for such failure(s) and a corrective action plan to remedy such failure(s).

d.Notwithstanding any herein to the contrary, commencing six (6) months after the Program Launch Date, if Bank makes any change in its new Account underwriting criteria that reasonably could be expected to result in a decrease in the Application Approval Rate by more than ██████████████████████████████████ then Zale may provide written notice to Bank that an Application Approval Rate failure has taken place.  Bank shall have ██████████ to cure the failure and if not cured, Zale shall have the right to terminate this Agreement upon 30-day notice to Bank; provided, however, Zale shall not have a right to terminate this Agreement if the decrease Application Approval Rate is due to one of the following reasons: (i) negative shift in the risk profile of the Applicants, (ii) actions caused by Zale, or (iii) changes implemented by Bank in order to comply with Applicable Law.

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SCHEDULE 2.2(H)

SERVICE STANDARDS

Critical Service Standards

New Accounts
1.	Application response times (Exclusive of mail in applications and applications that pend for review)	1. 2.	Average response within █ seconds of receipt by Bank’s host Ninety (90) days after the Conversion Date, the Operating Committee shall work in good faith to set a service level.
2.	Applications response times for applications that pend for review
Authorizations
3.	Authorization response times (Exclusive of authorization requests requiring external support e.g. additional bureau pull)	3.	Average response within █ seconds pf receipt by Bank’s host
4.	Authorization response times for authorizations that require external support	4.	Ninety (90) days after the Conversion Date, the Operating Committee shall work in good faith to set a service level.
Telephone Service
5.	Telephone answering response times for new accounts, authorizations, customer service, inclusive of Regional Manager and Store calls	5.	At least ██% of calls will be answered with ██ seconds
6.	Abandonment Rate for new accounts, authorizations, customer service inclusive of Regional Manager and Store call	6.	██% or less, excluding calls that abandon in the first ██ seconds
7.	IVR availability	7.	24x 7 excluding standard maintenance not to exceed
Systems Availability / Uptime
8.	Availability of Bank’ new accounts and authorization systems inclusive of its primary, secondary and tertiary systems as applicable	8.	███% of time
Customer Service
9.	Response times to Applicant or Cardholder inquiries including mail in applications	9.	██% within █ business days; ██% within █ business days
10.	Disputes	10.	Within █ billing cycles not to exceed ██ days

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Other Service Standards

Production Standards
1.	Credit Card production	1.	Within █ Business days after the application is approved
2.	Remittance processing	2.	██% of conforming payments will be processed within █ hours (nonconforming payments will be backdated to date of receipt)
Customer Service
3.	Acknowledgement of electronic Cardholder inquiries	3.	██% within █ hours

All Service Standards are measured and reported on pursuant to Section 2.2(h) on a monthly basis.

Remedies for failure to meet Critical SLAs

Banks failure to meet any Critical Service Standard shall result in Bank paying damages as follows:

·████████████████████████████████████████████████████████████████

·██████████████████████████████████████████████████████████████

For purposes of calculating the number of failures pursuant to this Schedule 2.2(h), multiple failures traced to a single root cause shall be counted as a single failure.

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SCHEDULE 2.2(I)

OPERATING COMMITTEE

The parties do hereby establish an “Operating Committee” which shall be comprised and operated as set forth in this Schedule 2.2(i).

A.Overview.  The purpose of the Operating Committee shall be to fulfill those responsibilities assigned to it per this Schedule 2.2(i), as well as any other responsibilities agreed upon in writing by the parties after the Effective Date.

The parties’ intent is that the Operating Committee serve as a forum through which the parties can work in cooperative collaboration (emphasizing communication and good faith efforts) to maximize the value of the Program for their mutual benefit, without modifying or compromising those rights provided to them, respectively, elsewhere in this Agreement.  Stated another way, the provisions of this Schedule 2.2(i) do not supersede either party’s rights and obligations as set forth elsewhere in this Agreement.

Rather, the provisions of this Schedule 2.2(i) describe the manner of cooperation and communication that shall accompany each party’s exercise of its rights and fulfillment of its obligations, such that Bank shall still have ultimate discretion with respect to Bank Matters and Zale shall have ultimate discretion as to Zale Matters, subject only to any conditions set forth elsewhere in this Agreement.  For instance, while Operating Procedures and Credit Card Agreement terms and provisions are Bank Matters, each of Section 2.4 and Section 3.3(d) sets forth certain conditions with regard to Bank’s exercise of its rights with regard to such Bank Matter.

For  purposes of this Schedule 2.2(i), “Bank Matters” are those related to subsections (D)(4) and (D)(8) below, as well as any component of the other subsections within (D) below for which Bank’s rights are set forth elsewhere in this Agreement.

For  purposes of this Schedule 2.2(i), “Zale Matters” are those related to subsections (D)(5) and (D)(7) below, as well as any component of the other subsections within (D) below for which Zale’s rights are set forth elsewhere in this Agreement.

B.Composition of the Operating Committee.  The Operating Committee shall consist of six (6) designees with equal voting rights, and half of whom shall be designated by Zale (the “Zale Designees”), and half shall be designated by Bank (the “Bank Designees” and together with the Zale Designees, the “Operating Committee Designees”).  Each of Zale and Bank shall at all times have as one of its designees the person within its respective organization with overall responsibility for the performance of the Program.  Each of Zale and Bank may from time to time substitute its designees, so long as their designees continue to satisfy the above requirements, and provided that each of Zale and Bank shall provide the other with as much prior notice of any such substitution as is reasonably practicable under the circumstances.  By way of clarification, each party’s designees must (collectively) have authority to make those decisions and take those actions necessary to effectuate the provisions of this Schedule 2.2(i).

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C.Proceedings of the Operating Committee.

1.The Operating Committee shall meet no less than quarterly, including (i) in person at least twice per year from the Effective Date until the Program Launch Date and thereafter at least twice per Program Year, alternating between the parties’ offices, and (ii) the other times telephonically, unless all Operating Committee Designees agree to meet in person or otherwise.  The Operating Committee (and any subcommittee formed by it) shall determine the frequency, place (in the case of meetings in person) and agenda for its meetings, the manner in which meetings shall be called and all procedural matters relating to the conduct of meetings and the approval of matters thereafter not already specifically provided for herein.

2(a)A valid meeting shall consist of an equal number of Zale Designees and Bank Designees.  By way of clarification, this provision does not affect/address the issue of how many non-designees attend a meeting and participate therein (which issue shall be decided by the Operating Committee in its discretion).

(b)A valid vote (and any course of action based thereon) shall consist of votes cast by an equal number of Zale Designees and Bank Designees.

(c)A majority vote of all designees participating in a valid vote shall suffice for a matter to be considered approved or otherwise decided.

D.Functions of the Operating Committee.  The functions of the Operating Committee shall be as follows:

1.Marketing Matters

(a)With regard to Section 2.6(a) and Schedule 2.6(a), agree upon and approve all Marketing Promotions.

(b)With regard to Schedule 2.6(b), discuss and monitor use of the Flex Fund (to the extent amounts in the Flex Fund are used for marketing purposes with respect to the Program) including but not limited to conducting analysis of the results of such expenditures.

(c)Discuss and monitor use of the Program Launch Fund and the Store Promotion Launch Funds, including but not limited to conducting analysis of the results of such expenditures.

(d)Approve a quarterly marketing plan, including: setting marketing related Program goals and strategy.

2.General Plan Performance

(a)Review and discuss status, major trends, projections, and possible strategies related to both the Converted Accounts and new Accounts (volumes, approval rates, activation rates, and penetration rate).  Set related goals and time frames for evaluating and meeting same.

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(b)Review, discuss, decide upon, and implement (as applicable) possible changes to the Program that would improve the Program for the benefit of the parties, such as in the areas of:

(i)the overall Customer/Cardholder experience (including interaction of Customer/Cardholder and Bank; as well as Customer/Cardholder and Zale);

(ii)Cardholder incentives;

(iii)Promotional Programs; and

(iv)Cardholder Loyalty Program, if any (including related development of forecasts/benchmarks and assessment of same).

(c)  Develop forecast/benchmarks for overall Program and assessment of same.

(d)  Review and discuss performance of Enhancement Marketing Services, if any.

3.General Portfolio Performance

Review, discuss and address (in general terms) any particular concerns that Bank has with regard to the general performance of the overall portfolio, in terms such as average spend, revolve rates, write-offs, collection related matters, and/or anticipated or actual change in Applicable Law.  Review and discuss any steps Bank feels are necessary to address such concerns.  By way of clarification, Bank shall not take any material action tied to such matters that Bank believes will materially affect the financial components of the Program (including effects on Cardholders and Applicants), without providing Zale as much prior written notice as is reasonable under the circumstances and the opportunity for discussion and inquiry by Zale.

4.Bank Performance

Review, discuss and address (in general terms, unless material specific concerns must be addressed) Bank’s performance (including Zale concerns regarding same) with regard to (i) meeting Service Standard level commitments, (ii) Customer service; (iii) communications and cooperation with Zale in Bank’s day-to-day administration of the Program; and (iv) performance of Bank’s Program servicer, vendors, contractors, and subcontractors.

5.Zale Performance

Review, discuss and address (in general terms unless material specific concerns must be addressed) Zale’s performance (including Bank’s concerns regarding same) with regard to Zale’s (i) meeting compliance (in terms of Applicable Law) obligations; (ii) associate management (in terms of training and general support of the Program); (iii) communications and cooperation with Bank in the Bank’s day-to-day administration of the Program; and (iv)  performance of Zale’s vendors, contractors, and subcontractors.

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6.Industry Monitoring

(a)Monitor competitive credit card programs to derive learnings that might benefit the Program, and discuss relevant information in terms of (i) expansion or contraction; (ii) reward programs/value propositions; (iii) application methods; and (iv) novel ideas and/or innovations; and/or (v) other components comparable to the Program; and

(b)Monitor, review, discuss and consider changes to the Program based on current trends in the consumer credit card industry in general.

7.Zale’s General Business

Review, discuss and address any general Zale business matters that might affect the Program:

(i)overall Zale sales volumes, including sales by tender type;

(ii)Sales Channel status and future expectations: expansion, contraction, etc.

(iii)any associate and/or Customer feedback with regard to the Program; and

(iv)prospective non-specific Program marketing campaigns.

Note: With regard to matters to be discussed under this subsection (D)(7) of Schedule 2.2(i), Zale has the right, in its discretion, not to share information regarding its possible future material actions and/or certain highly sensitive issues if/when it believes in good faith that doing so would be detrimental to its business interests.

8.Status of and Possible Changes to Bank’s Administration of the Program

Review, discuss and address any matters (including possible changes) which Bank believes to be material with respect to its administration of the Program, including but not limited to: (i) Operating Procedures; (ii) collection efforts and practices; (iii) credit decisions and Approval Rates, and/or (iv) Credit Card Agreement terms and provisions (Rates and Fees as well as non-Rates and Fees).  By way of clarification, Bank shall not take any material action tied to such matters that Bank believes will materially affect the financial components of the Program (including impact on Cardholders and Applicants), without providing Zale as much prior written notice as is reasonable under the circumstances and the opportunity for discussion and inquiry by Zale.

9.Program Documents

Review, discuss and address any matters either party believes is relevant to the development and use of Program Documents as part of each party’s rights and obligations under Section 2.5.

10.Systems

Review, discuss and address any matters either party believes is relevant with respect to its systems (including changes thereto) and performance of the respective parties under

52

this Agreement.  This includes but is not limited to the parties’ respective rights and obligations under Section 3.3(e).

11.Quick Qualify

Set performance targets for Quick Qualify and periodically monitor, review, discuss and consider changes to Quick Qualify, including without limitation, to discontinue offering Quick Qualify.

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SCHEDULE 2.2(J)

LAUNCH DATE PRODUCTS AND SERVICES

On the Program Launch Date but in any case no later than the Conversion Date, in addition to the Effective Date Products and Services, Bank shall also provide the following products and services:

Account Center

████████████████████████████████████████████████████.

Acquisition Technology

███████████████████████████████████████████████████████████.

Cardholder online microsite

Exclusive cardholder microsite linked from Zale home page; contains content to create cardholder engagement and drive spend.

Creative Services

Ongoing design support for credit marketing email templates, statement insert design, direct mail support, web branding support and other card program marketing materials; strong partnership between Zale’s and Bank’s brand marketing and creative services teams.

Financing Plan Optimization (FPO)

Research and analytics to determine most compelling promotional plans and optimal offer timeframe; maximizes cardholder acquisition, spend, and ROI.

In-store tablets

█████████████████████████████████████████████████████████

MosiacConnectTM rewards platform

Industry-leading one-to-one marketing communications platform; services include program earning and fulfillment criteria, marketing communications business rules set up, platform access, annual maintenance.

My Zale Extras

██████████████████████████████████████████████████████████████████ ██████████████████████████████████████████████████████████████ ██████████████████████████████████████████████.

*Bank shall provide such products to Zale by no later than the Program Launch Date; provided, that the parties hereby agree to discuss in good faith the delivery of such products to Zale at an earlier date.

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SCHEDULE 2.5(D)

CERTAIN ACCOUNTS

Those Zale Program Cardholders/Accounts falling into one or more of the following categories:

1.██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████;

2.██████████████████████████████████████████████████;

3.██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ████████████████████████████;

4.███████████████████████████████████████;

5.██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ █████;

6.██████████████████████████████████████████████████ █████████████████████████████████████;

7.██████████████████████████████████████████████████ ████████████████████████████████████████████;

8.██████████████████████████████████████████████████ ███████████████████████████████████;

9.██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ██████████████████████████████████████████████████ ███████;

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10.██████████████████████████████████████████████████ █████████████████.

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SCHEDULE 2.6(A)

MARKETING PROMOTIONS

Zale will promote and advertise the Program as set forth below:

Acquisition:

1.	Executive Sponsorship of Program — SLT member.
2.	Application and credit sales goals in place for stores and field leaders; include goals and key performance metrics in performance evaluations and weekly reporting for store, district and regional managers.
3.	Strategies in place for low performers (i.e. % of bonus at risk, manager and VP must participate in monthly call or field support training if applicable).
4.	Ensure field management & associates complete credit training.
5.	Implement marketing programs targeted towards acquisition (i.e. prescreens, invitation to apply events).

Retention:

1.	Full integration of multi-channel lifecycle marketing and modeling capabilities, (e.g. New Account Nurture, Shopping Cycle, 1x buyer, etc.).
2.	Marketing collateral includes regular inclusion of Program promotional material, including integration into digital channels.
3.	The Cardholder Loyalty Program, if any, is fully integrated with the Program & has a value greater than Zale’s tender neutral program (if applicable); or Value Proposition Design process to implement card specific loyalty program.
4.	Layering of marketing messages using targeting models for audience selection (i.e. look/like model, propensity to buy model, etc.).
5.	Implement reactivation programs, including a targeted marketing card reissue.

57

SCHEDULE 2.6(B)

FLEX FUND

Flex Fund

(a)Subject to the terms of this Schedule 2.6(b), each Program Year Bank shall contribute a certain amount of funds (“Flex Funds”) into a “Flex Fund” that Zale can use to (i) reduce the amount of Discount Fees charged by Bank to Zale on Promotional Programs during the Program Year contributed or (ii) to pay for marketing and promotion expenses associated with the Program as set forth in Section 2.6(b).  There shall be no roll-over of Flex Funds beyond the Program Year contributed (although Zale shall be entitled to payment from a particular Program Year if it provides appropriate documentation within 60 days following the end of such particular Program Year and previously provided notice to Bank as set forth in (b) below of such marketing promotion for such particular Program Year), and they shall in no event have any cash value.  The amount of Flex Funds that Bank shall contribute in Program Year One shall be █████████████████████.

In Program Years Two and thereafter, the amount contributed in any given Program Year shall be equal to ███████ basis points on Net Sales in the prior/just concluded Program Year.  Bank is not obligated to set-aside Flex Funds in a designated account or hold them in trust.  Flex Funds are the property of Bank until earned by Zale as described below.

Additionally, Bank shall have the right to cease the availability of Flex Funds if either party: (i) terminates this Agreement, (ii) notifies the other party of an intent to terminate or the fact that the notifying party has already terminated this Agreement, or (iii) notifies the other of the intent to allow this Agreement to expire.

(b)The Flex Fund shall be used by Zale solely to either (i) lower the applicable Discount Fees payable to Bank on those Promotional Programs, and at those times and for those durations, chosen by Zale (each such occurrence being referred to herein as a “Buy-Down Event”) or (ii) to pay for marketing and promotion expenses associated with the Program as set forth in Section 2.6(b).   No less than thirty (30) days prior to a Buy-Down Event, Zale shall provide written notice to Bank of: (i) Zale’s intent to use the Flex Funds; (ii) the commencement and termination dates each of the Buy-Down Event; (iii) the subject Promotional Program(s) (the “Buy-Down Promotional Program(s)”); and (iv) the lower Benchmark (or LIBOR Adjusted Benchmark) Discount Rate(s) that Zale would like to have apply to each subject Buy-Down Promotional Program, recognizing that it can never be less than 0.00%.

(c)Notwithstanding the provisions of (b) above, Flex Funds will not be applied until after the conclusion of the subject Buy-Down Event.  Then, at the conclusion of a Buy-Down Event, specifically, within thirty (30) days after the conclusion of any Buy-Down Event, Bank shall make the following calculations and pay to Zale (or add it to any settlement related payments) the appropriate amount due. ██████████████████████████████████████████████████████████████████████████ ██████████████████████████████████████████████████████████████

58

█████████████████████████████████████████████████████ █████████████████████.  Bank shall then pay Zale the amount of such difference from the Flex Fund, up to the then-current balance of the Flex Fund.

(d)The following example illustrates the process described collectively in (b) and (c) above.

Presume that Zale decides that it would like to lower the then applicable Benchmark (or LIBOR Adjusted Benchmark) Discount Rate on the 24-Month Promotional Program during the █████ ████ preceding █████████████████████.  Further presume that at such time ██████ of Flex Funds are available.  In such case, Zale would provide the thirty (30) days’ written notice to Bank before █████████.  The written notice would be sufficient hereunder if it stated that (i) Zale desired to use Flex Funds, (ii) that that the Buy-Down Event would be in effect from █████████████████████; (iii) that the Buy-Down Promotional Program would be the 24 Month Promotional Program, and that (iv) Zale wanted the then applicable Benchmark Discount Rate (in this example, no LIBOR adjustment being in effect) to be reduced from the otherwise applicable ██% to ██%.

████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ███████████████████████████████████████████████████████████████████████████.

59

SCHEDULE 2.7(C)(II)

WEEKLY MASTER FILE INFORMATION

Account Identification Number

Month Account Opened

Year Account Opened

Store Account Opened

Cardholder Name

Cardholder’s Street Address

Cardholder’s City

Cardholder’s State

Cardholder’s Zip Code

Cardholder’s Home Phone Number

Date of Last Purchase

Cardholder’s Open to Buy

Number of Purchases Monthly

Amount of Purchases Monthly, YTD

Number of Returns Monthly

Amount of Returns Monthly

Items Purchased

Date Account Opened

Cardholder’s Credit Line

Date of Last Payment

Cardholder’s Current Balance

Card Status

Cardholder’s Email Address

Cardholder’s Date of Birth

Store of Last Sale

Language Flag

Solicit Flag

60

SCHEDULE 2.7(C)(III)

DAILY FILE INFORMATION

Part A

Daily Application File Information

Employee ID who completed application

Store Number

Store Division Code

Date Customer completed application

Time application completed

Decision (Approved)

Customer name

State

Insurance code (platinum, silver, none)

Date logged at provider

Date file was processed by Zale IT

Part B

Daily Authorization File Information

Account Identification Number

Transaction Date

Amount requested

Amount approved

Approval code given or decline

61

SCHEDULE 2.8(B)

PROTECTION PRODUCTS AND ENHANCEMENT MARKETING SERVICES

Zale and its Affiliates shall have the right to market, offer and retain the profits associated with the following protection products and services (the “Protection Products”):

1.  Credit Property;

2.  Credit Life (with Accelerated Death and Total Disability rider);

3.  Credit Disability; and

4.  Credit Involuntary Unemployment.

Bank will provide the following services to support the Protection Products offered by Zale and its Affiliates:

1.  Maintain insurance feed tables with regard to premium amounts;

2.  Adjustments to accounts at the Cardholder level (i.e. reduction in insurance coverage provided);

3.  Support the production of new Account applications in their current form.  For sake of clarity, Bank will be responsible for the production costs associated with the Account application and Zale will be responsible for the production cost associated with the Protection Product portion of the Account application; and

4.  Reporting and premium payment feeds mutually agreed upon by Zale and Bank.

Other terms.  All such Protection Products shall be deemed to be Goods and Services hereunder and may be charged by Cardholders on their Credit Cards.  Any sale by Zale or its Affiliate of such Protection Products which are charged by a Cardholder on such Cardholder’s Credit Card shall, for all purposes hereof, be deemed to be a Purchase; provided, however, that notwithstanding the foregoing, Discount Fees shall not be applicable to any Purchase to the extent the amount due from a Cardholder as a result of such Purchase arises out of any purchase of such Protection Products.  All Protection Products sold pursuant to Purchases hereunder shall be subject to the terms and conditions of a Memorandum of Insurance.  Zale shall be solely responsible for the Protection Product portion included in the Account application for an Applicant to elect to purchase such Protection Products.  With regard to the Program, Bank shall not, without Zale’s prior written approval (which approval may be withheld in Zale’s sole discretion) offer insurance or insurance related products of any Person other than an Affiliate of Zale.  Bank shall cooperate with Zale or any its Affiliates, as the case may be, in offering the insurance related products and services as contemplated by this Schedule 2.8(b) and shall provide Zale, at Zale’s request and to the full extent permitted by Applicable Law, such information regarding and access to Cardholders as Zale or any its Affiliates may reasonably request in connection with the marketing and servicing of such Protection Products.  If and to the extent that all or any portion of an insurance premium is billed to an Cardholder by Bank and is

62

subsequently written off by Bank in accordance with Bank’s policies regarding the Program, Zale or its Affiliate offering such Protection Products shall be entitled to invoice and pursue its rights and remedies directly against such Cardholder as provided in the Cardholder’s insurance policy for such Protection Products or Applicable Law.

Enhancement Marketing Services.  Company shall receive from Bank ███████████████████ generated by Enhancement Marketing Services.

63

SCHEDULE 2.10

OTHER OFFERINGS UNDER THE PROGRAM AFTER THE PROGRAM LAUNCH DATE

Pursuant to the terms of this Schedule 2.10, Bank will make available the following credit card programs described in this Schedule 2.10 after the Program Launch Date.  Zale shall pay standard Discount Fees for the credit card programs set forth in this Schedule 2.10.

(a)      ████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

██████████████████████████████████████████.

(i)      ███████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

█████████████████████████████████████████████████████████.

(b)      ████████████████████████████████████████████████████████████████████████

███████████████:

(i)      ███████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

███████████.

(c)      ████████████████████████████████████████████████████████████████████████

██████████████████████████████.

(i)      ███████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

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████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

██████████████████████.

████████████████████████████████████████████████████████████████████████████

████████████████████████████████.

████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

███████████████████:

████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

███

████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

█████████████████████████████████████████

██████████████████████████████████████████████████████████████████

██████████████████████████████████████████████████████

████████████████████████████████████████████████████████████████████████████

█████████████████████████

███████████

████████████████████████████████████████████████████████████████████████████

██████

██████████████████

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████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

█████████████████████████████████████████████████████████████████████████.

████████████████████████████████████████████████████████████████████████████

███████████████████████████████████████████████████.

66

SCHEDULE 2.12

PORTFOLIO PURCHASE AND SALE AGREEMENT

(a)           Capitalized terms in this Schedule 2.12 which are not defined herein or elsewhere in this Agreement shall have the corresponding meaning set forth in the Zale Program Agreement.

(b)           Zale and Bank hereby acknowledge that by letter dated July 9, 2013, and delivered July 9, 2013 (the “Notice Date”), and under the terms of the Zale Program Agreement, Zale will provide notice to the issuer of the Zale Program Accounts that Zale is terminating the automatic renewal provision of the Zale Program Agreement so that the Zale Program Agreement expires at the end of the “Initial Term” (as defined therein) and that Bank is Zale’s designee to purchase the Converted Accounts (which role as designee Bank hereby accepts).  Bank may and shall rely on Zale’s following representations with respect to the timing of Bank’s right to enter into such negotiations with the Zale Program issuer.  Specifically: (i) Zale has not issued nor received a notice of termination under the Zale Program Agreement; and (ii) Zale shall immediately notify Bank in writing upon Zale’s receipt of a notice of termination by the Zale Program issuer.

(c)           Upon the Notice Date, Bank shall promptly begin to work diligently and in good faith to:  (i) complete negotiations with the Zale Program issuer and enter into a fully executed contract by close of business by no later than ███████████, and (ii) have the Conversion take place no later than the close of business on █████████ (or such other date mutually agreed to by the parties thereto).  Bank shall use commercially reasonable efforts to minimize transactions costs of such sale and conversion, and Bank shall, upon request of the Zale Program issuer, enter into a customary confidentiality agreement with the Zale Program issuer as part of such negotiations (unless Bank has already entered into such an agreement prior to beginning negotiations). With regard to certain (but not all) clarifications as to the meaning of “good faith negotiations”, see (d) below.

(d)           (i) Good faith negotiations by Bank would include exerting all good faith effort to have the following provisions be included in the Portfolio Purchase and Sale Agreement (which for the avoidance of doubt shall include commercially reasonable terms, representations and warranties as well as indemnification rights for the benefit of Bank against the Zale Program issuer for the Zale Program issuer’s actions or inactions under the Zale Program and the Zale Program Agreement), and not using the inclusion of any one or more of same as a basis for refusing to enter into a Portfolio Purchase and Sale Agreement:█████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████ ████████████████████████████████████████████████████████████████████████████

67

████████████████████████████████████████████████████████████████████████████ ██████████████████████████████████████████████████████████████

(ii) Good faith negotiations by Bank would also include making itself reasonably available in terms of (A) reasonable flexibility of schedules for telephonic and/or in-person negotiations (including at the offices of the Zale Program issuer and/or its legal counsel) and (B) reasonable availability of appropriately authorized representative given the specific issues to be addressed in any particular discussion with the Zale Program issuer; and (C) communicating to the Zale Program issuer that one of Bank’s key priorities is to enter into the Portfolio Purchase and Sale Agreement by close of business on ███████████, and acting in a manner consistent with that priority. By way of clarification, Bank’s willingness to accept all substantive terms of any draft of such agreement presented by the Zale Program issuer constitutes meeting the obligations set forth in (C).

(iii)   Good faith negotiations by Bank would also include not taking positions that are commercially unreasonable given the terms and conditions that are customarily agreed to in similar agreements within the consumer credit card account industry.

(iv)  The following would not constitute a lack of good faith negotiations by Bank: not being able to enter into a Portfolio Purchase and Sale Agreement because the Zale Program issuer failed to negotiate in good faith  (using examples of good faith negotiations cited in (i) through (iii) above as to what constitutes good faith negotiations).

(e)           Zale shall work diligently and in a good faith commercially reasonable manner to support Bank’s efforts with regard to the Portfolio Purchase and Sale Agreement and the Conversion (including timing).  By way of clarification, Zale’s efforts shall include but not be limited to: (i) enforcing its rights under the Zale Program Agreement as well as any rights of Bank as Zale’s designee, including but not limited to those with regard to the Zale Program issuer’s obligated manner of negotiation; and (ii) otherwise facilitating Bank’s dealings with the Zale Program issuer as is customary in the consumer credit card industry for retailers whose credit card programs are being transferred from one issuer to another.

(f)            Bank acknowledges that its purchase and ownership of the Converted Accounts shall be in all instances without recourse against Zale or any of its Affiliates, and Zale acknowledges that its obligation of good faith efforts described in the preceding sentences includes releasing any claims, or liens, or the like with respect to the Converted Accounts.

68

SCHEDULE 3.3(D)

SUMMARY OF RATES AND FEES

(ALL SUBJECT TO APPLICABLE LAW)

CONDITIONS	CURRENT TERMS
Annual Percentage Rate (APR)	%
Grace Period	Not less than days
Penalty Rate	%
Minimum Late Fee	Up to $
Minimum NSF Fee	Up to $
Minimum Repayment Rate	Greater of (i) % of outstanding balance plus applicable fees, or (ii) $

*as published in the “Money Rates” section of the Wall Street Journal on the date of reference.

69

SCHEDULE 3.11

BANK REPORTS

Frequency	Name	Description
Weekly	CORE PERFORMANCE METRICS	New account processing: number submitted, duped, pending, activated and percentages.
Monthly	CORE PERFORMANCE METRICS	High level executive overview of Program key measures (market share, average transaction, applications, new Accounts); reconciliation of beginning month and ending number of active accounts; portfolio statistics.
Daily	DISBURSEMENT	Sales, Returns, Discount Fees, and Net funding released to Zale.
Monthly	DISBURSEMENT	Sales, Returns, Discount Fees, and Net funding released to Zale.
Daily	DAILY IQ	Daily funding report.
Monthly	STORE SETTLEMENT BY PROGRAM	Posted sales and returns.
Daily	DISCOUNT FEES CALCULATION	Discount Fees calculation.
Daily	NEW ACCOUNTS	New Account file.
Weekly	AUTHORIZATION RATE	The number of transactions submitted for authorization compared to the number of transactions declined.
Monthly	FICO REPORT	The aggregate FICO or FICO equivalent distribution of all Applicants.
Monthly	SALES TAX AUDIT FILE	Used to claim sales tax rebates from various states for charged-off accounts; provides accounts that have been charged-off, with store number.

All reporting is subject to change in order to conform with subsequent changes to Bank’s standard monthly reporting package.

70

SCHEDULE 7.1

TERM AND EXPIRATION

Upon execution by authorized representatives of both parties, and unless terminated as provided herein, this Agreement shall become effective as of the Effective Date and remain in effect until the later of (i) October 1, 2022, and (ii) the end of Program Year Seven (the “Initial Term”), and automatically renew for successive two (2)-year terms (each a “Renewal Term”) thereafter, unless either party provides the other with at least twelve (12) months’ written notice of its intention not to renew this Agreement beyond the expiration of the Initial Term or then current Renewal Term.  Additionally, if Bank achieves an average of $███████ in Bank originated Net Sales on a trailing twelve-month basis for two consecutive Program Quarters within the first three Program Years after the Program Launch Date, then Bank shall have a 60-day option after the end of Program Year Three (which option shall be exercised by Bank by delivering written notice of such exercise to Zale within such 60-day period) to extend the Initial Term by an additional two (2) years.  Upon exercise of such option by Bank, the Initial Term of this Agreement shall be automatically extended by an additional two (2) years.

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SCHEDULE 7.4

PURCHASE OF ACCOUNTS

a.             Upon termination or expiration of this Agreement, Zale or its designee will have the option to purchase the Accounts and all Accounts Receivable related thereto (the “Portfolio”), without recourse to Bank.  The purchase price shall be determined using the same pricing methodology as used when Bank purchased the original portfolio, but in no case shall the purchase price be greater than par.  This definition specifically excludes any amounts which have been written-off by Bank with respect to such Accounts.

b.             Notwithstanding anything to the contrary provided elsewhere in this Schedule 7.4, Bank shall not be required to sell or deconvert the Portfolio during the period of November 15th of one year through February 15th of the immediately following year.

c.             If Zale (or its designee) exercises such right to purchase the Portfolio, the closing of such purchase shall take place not later than one (1) Business Day after this Agreement’s termination or expiration, and shall include payment being made by wire transfer of immediately available funds to an account designated by Bank.  Upon payment of the purchase price to Bank, Bank shall assign to Zale (or its designee), without recourse, all of Bank’s right, title and interest in and to the Portfolio.

d.             In the case of a purchase, Zale shall (at its and/or its designee’s expense, but not Bank’s) notify all Cardholders that Bank is no longer the owner of their Accounts.  Zale and Bank shall cooperate in facilitating the transition to Zale or its designee, and Zale shall ensure appropriate cooperation on the part of its designee.

e.             If Zale (or its designee) does not exercise such right to purchase the Portfolio upon termination or expiration, then Bank as owner shall exercise its rights thereto.  In addition, Zale and its Affiliates (or designee) shall have the following options ██████████████████████████████████████████████████████████████ ████████████:

██████████████████████████████████████████████████████████████.

████████████████████████████████████████████████████████████████████████████ █████████████████████████████████████████████.

████████████████████████████████████████████████████████████████████████████ ████████████████████████████████ █████████████████████████.

f.             For the avoidance of doubt, the purchase of the Portfolio by Zale (or its designee) shall include the purchase of all Special Program Accounts and the Accounts Receivable with respect thereto.  Should Zale (or its designee) not exercise such right to purchase the Portfolio, including without limitation, the Special Program Accounts and the Accounts

72

Receivable with respect thereto, Zale shall continue to receive its share of the Special Programs Yield Share applicable to the Special Program Accounts and shall pay to Bank any short-fall of the guaranteed pre-tax return on asset of █% to which the Bank is entitled under Schedule 2.10.

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EX-23.1

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

        We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-67527, 333-20673, 333-01789, 333-53802, 333-53804, 333-117249, 333-130246, and 333-185499) of Zale Corporation of our reports dated September 27, 2013, with respect to the consolidated financial statements and the effectiveness of internal control over financial reporting of Zale Corporation included in this Annual Report (Form 10-K) for the year ended July 31, 2013 filed with the Securities and Exchange Commission.

/s/ ERNST & YOUNG LLP

Dallas, Texas
September 27, 2013

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

EX-31.1

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EXHIBIT 31.1

CERTIFICATION

I, Theo Killion, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Zale Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.



5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:



a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 27, 2013 By: /s/ THEO KILLION
Theo Killion
Chief Executive Officer
(principal executive officer of the registrant)

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EXHIBIT 31.1

EX-31.2

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EXHIBIT 31.2

CERTIFICATION

I, Matthew W. Appel, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Zale Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.



5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:



a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 27, 2013 By: /s/ MATTHEW W. APPEL
Matthew W. Appel
Chief Administrative Officer

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EXHIBIT 31.2

EX-31.3

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EXHIBIT 31.3

CERTIFICATION

I, Thomas A. Haubenstricker, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Zale Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.



5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:



a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



a)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 27, 2013 By: /s/ THOMAS A. HAUBENSTRICKER
Thomas A. Haubenstricker
Chief Financial Officer
(principal financial officer of the registrant)

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EXHIBIT 31.3

CERTIFICATION

EX-32.1

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EXHIBIT 32.1

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

        The undersigned, as the Chief Executive Officer of Zale Corporation, certifies, to the best of his knowledge, that the Annual Report on Form 10-K for the year ended July 31, 2013, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Zale Corporation at the dates and for the periods indicated. The foregoing certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose.

Date: September 27, 2013 By: /s/ THEO KILLION
Theo Killion
Chief Executive Officer
(principal executive officer of the registrant)

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EXHIBIT 32.1

EX-32.2

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EXHIBIT 32.2

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

        The undersigned, as the Chief Administrative Officer of Zale Corporation, certifies, to the best of his knowledge, that the Annual Report on Form 10-K for the year ended July 31, 2013, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Zale Corporation at the dates and for the periods indicated. The foregoing certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose.

Date: September 27, 2013 By: /s/ MATTHEW W. APPEL
Matthew W. Appel
Chief Administrative Officer

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EXHIBIT 32.2

EX-32.3

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EXHIBIT 32.3

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

        The undersigned, as the Chief Financial Officer of Zale Corporation, certifies, to the best of his knowledge, that the Annual Report on Form 10-K for the year ended July 31, 2013, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Zale Corporation at the dates and for the periods indicated. The foregoing certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose.

Date: September 27, 2013 By: /s/ THOMAS A. HAUBENSTRICKER
Thomas A. Haubenstricker
Chief Financial Officer
(principal financial officer of the registrant)

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EXHIBIT 32.3

EX-99.1

Exhibit 99.1

ZALE CORPORATION

AUDIT COMMITTEE CHARTER

(As of September 2010)

Purposes

The primary purposes of the Audit Committee are to assist the Board in its oversight of (1) the integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence and (4) the performance of the Company’s internal audit function and independent auditors. Its responsibilities in that regard include:

·Reviewing the financial reports and other financial information provided by the Company to any governmental or other regulatory body and monitoring any public distribution or other uses thereof;

·Reviewing the annual independent audit of the Company’s financial statements;

·Reviewing the Company’s systems of internal accounting and financial controls; and

·Reviewing and monitoring the internal audit process and internal audit results.

In discharging its duties, the Committee is empowered to investigate any matter brought to its attention with full access to all Company books, records, facilities, personnel, legal counsel and independent auditors, along with the sole power to retain and terminate outside counsel, auditors or other experts for this purpose and to approve their fees and other retention fees. Any independent auditor retained by the Company shall report directly to the Committee and is ultimately accountable to the Committee. The Committee shall be entitled to incur at the Company’s expense ordinary administrative expenses that are necessary or appropriate in carrying out its duties.

The Committee shall review the adequacy of this charter on an annual basis and recommend any appropriate changes to the Board for consideration.

Membership

Appointment and Removal. The Committee shall be appointed by the Board and shall serve at the pleasure of the Board for such term as the Board may decide or, with respect to an individual Committee member, until such Committee member is no longer a Board member. The Board shall designate the chair of the Committee.

Number and Meetings. The Committee shall be comprised of not less than three members of the Board. The Committee shall meet as often as necessary to fulfill its responsibilities.

Independence. The Committee members will each qualify as (1) an “independent director” under the rules of the New York Stock Exchange and (2) “independent” as defined by the rules and regulations of the Securities Exchange Act of 1934. These requirements as currently in effect are summarized in Annex A hereto. Accordingly, the members of the Committee will be directors who the Board affirmatively concludes have no material relationship to the Company, as determined by the Board, either directly or as a partner, shareholder or officer of any organization that has a relationship with the Company.

The failure of the Committee to satisfy the independence requirements set forth above or the financial literacy requirements set forth below shall not invalidate any actions taken by the Committee.

Financial Literacy. The Committee members will meet the experience requirements of the New York Stock Exchange and the Securities Exchange Act of 1934. Each Committee member will be financially literate or will become financially literate within a reasonable period of time after his or her appointment to the Committee. In addition, at least one member of the Committee will have accounting or related financial management expertise and that member or another member of the Committee must be an “audit committee financial expert” (as such term is defined by the rules and regulations of the Securities Exchange Act of 1934). The designation or identification of a person as an audit committee financial expert shall not (a) impose on such person any duties, obligations or liability greater than the duties, obligations and liability imposed on such person as a member of the Committee and the Board in the absence of such designation or identification or (b) affect the duties, obligations or liability of any other member of the Committee or the Board.

Responsibilities

The Company’s management is responsible for preparing the Company’s financial statements, and the independent auditors are responsible for auditing those financial statements. Additionally, the Board recognizes that the Company’s financial management, as well as the independent auditors, have more time, knowledge and detailed information regarding the Company than do Committee members. As a result, in carrying out its oversight responsibilities, the Committee’s role is not to provide expert or special assurance as to the Company’s financial statements or any professional certification as to the independent auditors’ work. As used in this charter, the term “independent auditor” means any independent auditor, including one constituting a “registered public accounting firm” (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act of 2002), engaged for the purpose of preparing or issuing an audit report or performing other audit review or attest services for the Company.

The following functions shall be the common, recurring activities of the Committee in carrying out its duties.

1.Retention of Independent Auditors. The Committee shall be directly responsible for the appointment, compensation, retention, oversight and termination of the independent auditors. The Committee shall have the ultimate authority and responsibility to select the independent auditor (including approval of all engagement fees and terms and resolution of disagreements between management and the independent auditors), evaluate the independent auditors (including its qualifications, performance and independence) and, where appropriate, replace the independent auditors.

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2.Independence of Auditors. In connection with the retention of the Company’s independent auditors, the Committee shall, at least annually, review and discuss the information provided by management and the auditors relating to the independence of the audit firm, including, among other things, information related to the non-audit services provided and expected to be provided by the auditors and the other relationships between the Company and the auditors. The Committee shall be responsible for (a) ensuring that the independent auditors submit at least annually to the Committee a formal written statement delineating all relationships between the auditors and the Company consistent with applicable independence standards, (b) actively engaging in a dialogue with the auditors with respect to any disclosed relationship or service that may impact the objectivity and independence of the auditors and (c) taking appropriate action in response to the auditors’ report to satisfy itself of the auditors’ independence.

3.Pre-Approval of Audit and Non-Audit Services. The Committee shall pre-approve all audit, review or attest services and all permissible non-audit services. The Committee may delegate to one or more of its members the authority to pre-approve audit services and non-audit services pursuant to any pre-approval policies and procedures established by the Committee and satisfying the requirements set forth in the Securities Exchange Act of 1934; provided, however, that all pre-approved services must be disclosed by such delegate to the full Committee at each of its scheduled meetings.

4.Independent Auditors’ Quality Control. The Committee shall obtain and review a report from the independent auditors, at least annually, which describes (a) the audit firm’s internal quality-control procedures and (b) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the audit firm, and any steps taken to deal with any such issues.

5.External Audit Plans. The Committee shall review and discuss with the independent auditors the plans for, and the scope of, the annual audit and other examinations, including the adequacy of staffing and compensation.

6.Conduct of the Audit. The Committee shall review with the independent auditors any audit problems or difficulties and management’s response, including any restrictions on the scope of the independent auditors’ activities or on access to requested information, and any significant disagreements with management. The Committee, consistent with Section 303 of the Sarbanes-Oxley Act of 2002 and Regulation 13B-2 promulgated thereunder, shall not influence the conduct of the audit in any improper manner.

7.Review of Audit Results. The Committee shall review and discuss with the independent auditors the report of their annual audit, or proposed report of their annual audit, and (a) major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies, (b) analyses prepared by management or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements, (c) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial

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statements of the Company and (d) any audit problems or difficulties encountered in the audit work and management’s response.

8.Assurances Under Section 10A of the Exchange Act. The Committee shall obtain from the independent auditors assurance that Section 10A of the Securities Exchange Act of 1934 (generally relating to the auditors’ identification of illegal acts and related party transactions) has not been implicated.

9.Financial Statements and Disclosures. The Committee shall review with management and the independent auditors the annual and quarterly financial statements to be included in the Company’s periodic reports, including disclosures in the Management’s Discussion and Analysis section contained therein. This review will occur prior to filing of the annual or quarterly report, as applicable, and the Committee shall recommend to the Board whether the audited annual financial statements should be included in the Company’s Form 10-K. The Committee shall review and consider with the independent auditors the matters required to be discussed by the Statement of Auditing Standards (“SAS”) No. 61.

10.Financial Press Releases. The Committee shall review and discuss the Company’s earnings press releases (including any use of “pro forma,” or “adjusted” non-GAAP, information) and the financial information and earnings guidance provided to analysts and rating agencies. This review may occur before or after issuance and may be done generally (i.e., review of the types of information to be disclosed and the types of presentation to be made).

11.Internal Audit Plans. The Committee shall review and discuss with the partner of the audit firm performing the internal audit function and appropriate members of his or her staff, and the in-house personnel performing any internal audit functions, the plans for and the scope of their ongoing audit activities, including adequacy of staffing and compensation.

12.Internal Audit Results. The Committee shall review and discuss with the partner of the audit firm performing the internal audit function, management, the independent auditors and the appropriate staff members of each, the results of any internal audits.

13.Internal Accounting Controls. The Committee shall review and discuss with the partner of the audit firm performing the internal audit function, management, the independent auditors and the appropriate staff members of each, the quality and adequacy of the Company’s internal accounting controls, the Company’s financial, auditing and accounting organizations and personnel, and the Company’s policies and compliance procedures with respect to business practices which shall include the disclosures regarding internal controls and matters required to be reported to the Committee by Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

14.Separate Meetings. The Committee shall meet separately and periodically with management, with internal auditors (or other personnel responsible for the internal audit function) and with independent auditors.

15.Risk Management Policies. The Committee shall discuss policies with respect to risk assessment and risk management in order to govern the processes by which management assesses and manages the Company’s exposure to risk.

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16.Hiring of Employees of Independent Auditors. The Committee shall set clear hiring policies for employees or former employees of the independent auditors, and in the absence of an applicable policy no such individual shall be hired.

17.Complaints Regarding Financial Statements or Accounting Policies. The Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

18.Proxy Statement Report. The Committee shall prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company’s annual proxy statement.

19.Review of Other Matters. The Committee shall review and discuss such other matters that relate to the accounting, auditing and financial reporting practices and procedures of the Company as the Committee may, in its own discretion, deem desirable in connection with the review functions described above.

20.Other Duties. The Committee shall perform any other duties or responsibilities delegated to the Committee by the Board from time to time.

21.Reports to the Board. The Committee shall report regularly to the Board, which report may include issues that arise with respect to (a) the quality of integrity of the Company’s financial statements, (b) the Company’s compliance with legal or regulatory requirements, (c) the performance and independence of the Company’s independent auditors or (d) the performance of the internal audit function.

22.Annual Evaluation. The Committee shall conduct and review with the Board annually an evaluation of the Committee’s performance.

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Annex A

Audit Committee

Independence Requirements

NYSE Rules. No director qualifies as “independent” unless the Board affirmatively determines that the director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). In addition, the following directors shall not satisfy the definition of “independent”:

(i)A director who is an employee, or whose immediate family member is an executive officer, of the Company is not independent until three years after the end of such employment relationship.

(ii)A director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not independent until three years after he or she ceases to receive more than $120,000 per year in such compensation.

(iii)A director who is affiliated with or employed by, or whose immediate family member is affiliated with or employed in a professional capacity by, a present or former internal or external auditor of the Company is not “independent” until three years after the end of the affiliation or the employment or auditing relationship.

(iv)A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company’s present executives serve on that company’s compensation committee is not “independent” until three years after the end of such service or the employment relationship.

(v)A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues, is not “independent” until three years after falling below such threshold.

SEC Rules. In order to be considered to be independent, a member of the Committee may not, other than in his or her capacity as a member of the Committee, the Board, or any other Board committee:

(A)Accept directly or indirectly any consulting, advisory, or other compensatory fee from the Company or any subsidiary thereof, provided that, unless the rules of the New York Stock Exchange provide otherwise, compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Company (provided that such compensation is not contingent in any way on continued service); or

(B)Be an affiliated person (as defined by the SEC) of the Company or any subsidiary thereof.

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Other. No member of the Committee may simultaneously serve on more than three audit committees of companies with registered debt or equity (including the Company) unless the Board determines that such simultaneous service would not impair the ability of such member to effectively serve on the Committee.

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EX-99.2

Exhibit 99.2

ZALE CORPORATION

COMPENSATION COMMITTEE CHARTER

(As of December 2012)

Purposes

The primary purposes of the Compensation Committee are to (1) oversee the compensation of the Company’s officers, (2) approve the Company’s policies, programs, procedures and objectives for compensating its officers and key employees, and (3) administer the Company’s equity-based incentive compensation plans. Its responsibilities in that regard include:

·Monitoring compensation practices at other companies generally and in the retail industry in particular;

·Establishing corporate goals and objectives with respect to compensation; and

·Overseeing the Company’s compensation setting practices.

In discharging its duties, the Committee is empowered to investigate any matter brought to its attention with full access to all Company books, records, facilities, personnel, legal counsel and independent auditors, along with the sole power to retain and terminate outside consultants, counsel and other experts for this purpose and to approve their fees and other retention terms. In retaining consultants, outside counsel or other experts, the Committee shall consider their independence, including any independence factors required to be considered by the New York Stock Exchange, the SEC or otherwise.

The Committee shall review the adequacy of this charter on an annual basis and recommend any appropriate changes to the Board for consideration.

Membership

Appointment and Removal. The Committee shall be appointed by the Board and shall serve at the pleasure of the Board for such term as the Board may decide or, with respect to an individual Committee member, until such Committee member is no longer a Board member. The Board shall designate the chairperson of the Committee.

Number and Meetings. The Committee shall be comprised of not less than three members of the Board. The Committee shall meet as often as necessary to fulfill its responsibilities.

Independence. The Committee members will each qualify as (1) an “independent director” under the rules of the New York Stock Exchange, (2) an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (“Section 162(m)”) and (3) a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 (“Rule 16b-3”), in each case as such requirements may be interpreted or amended from time-to-time by the promulgating authority. In determining whether a director is independent for purposes of serving on the Committee, the Board will consider relevant factors including, but not

limited to, (i) the source of the director’s compensation, including any consulting, advisory or other compensation fees paid by the Company, and (ii) whether the director has an affiliate relationship with the Company, a subsidiary of the Company, or an affiliate of a subsidiary of the Company.

The failure of the Committee to satisfy the independence requirements set forth above shall not invalidate any actions taken by the Committee.

Responsibilities

The following functions shall be the common, recurring activities of the Committee in carrying out its duties.

1.Executive Compensation Policies and Programs. The Committee shall review, approve and administer the Company’s compensation policies and programs for officers and key employees.

2.Director Compensation. The Committee shall review and administer Board compensation policies and shall make appropriate recommendations to the Board. The Committee shall not, however, have the authority to approve or determine director compensation.

3.Approval of Newly-Hired and Promoted Officers. The Committee shall review and approve the hiring of officers and the promotion of employees to officer positions. Notwithstanding the foregoing, the Board must approve the hiring of a Chief Executive Officer or the promotion of an individual to that position.

4.Chief Executive Officer Compensation. The Committee, acting together with any other independent directors who have advised the Chairperson of the Committee in writing that they would like to participate, shall (a) review and approve any employment agreements or arrangements with the Chief Executive Officer of the Company, (b) review and approve, at least annually, corporate goals and objectives relevant to the compensation of the Chief Executive Officer, (c) evaluate the performance of the Chief Executive Officer in light of those corporate goals and objectives, and (d) have sole authority to determine and approve the compensation of the Chief Executive Officer. The Committee shall report the determination of the Chief Executive Officer’s compensation to the Board.

5.Non-CEO Compensation. The Committee shall (a) review and approve any employment agreements with “executive officers” of the Company (as defined in Rule 3b-7), other officers who are direct reports to the Chief Executive Officer, and any other employees who the Committee has identified in a resolution stating the Committee’s intent to review and approve their employment arrangements (collectively, “Senior Executives”) and (b) review and approve the compensation levels for the Senior Executives. The determination of the compensation levels for officers and employees other than the Senior Executives is delegated by the Committee to management, subject to Committee approval of incentive compensation where such approval is required under Section 162(m) or Rule 16b-3 in order to obtain relief from the related provisions of applicable law. The Committee shall report the determination of the non-CEO officers’ compensation to the Board. Without by implication limiting the foregoing, the Committee also shall approve employment agreements with any other employees of the Company to the extent that they contain a change-in-control or similar benefit.

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6.Equity-Based Plans. The Committee shall review and approve equity-based plans (including the guidelines and rules thereunder) and the awards thereunder; provided however, that awards to new hires and promotions of employees other than Senior Executives is delegated on a non-exclusive basis by the Committee to management, provided that (a) no more than 50,000 restricted stock units and options shall be granted pursuant to this delegated authority in total, subject to replenishing such number through the subsequent ratification of such grants by the Committee, (b) each grant pursuant to this delegated authority shall be approved by (i) the Chief Executive Officer and (ii) either the Chief Administrative Officer or Senior Vice President of Human Relations (or such other person as may be the senior Human Relations Officer), and (c) individual grants be consistent with (or less than) the most recent guidelines presented to the Committee (as evidenced by the approval specified in clause (b)). The exercise price for all awards shall be the closing price on (i) the last trading day of the month during which a grant is made, or (ii) if the Committee or Board determines appropriate for an award that it approves                                                                                    , the day of its approval of the award, and in either event the date as of which the exercise price is determined shall be deemed to be the date of the grant for purposes of the applicable plan.

7.Incentive Compensation Plans. The Committee shall review and approve all other incentive compensation plans (including the guidelines and rules thereunder) providing awards to Senior Executives and the awards thereunder. The Committee shall report the determination of the incentive compensation plans and the grants thereunder to the Board.

8.Certain Other Plans. Unless expressly provided otherwise, the Committee shall administer the Company’s equity-based incentive compensation plans and other plans that contemplate administration by the Board or a Board committee; provided, however, that, absent express approval of the Board, the Committee will not administer or have oversight of the administration of any employee benefit plan subject to the Employee Retirement Income Security Act.

9.Regulatory Compliance. The Committee shall, in consultation with appropriate officers of the Company, oversee regulatory compliance with respect to compensation matters, including overseeing any compensation programs intended to preserve tax deductibility and, as may be required, establishing performance goals and determining whether performance goals have been attained for purposes of Section 162(m) of the Internal Revenue Code.

10.Proxy Statement Report. The Committee shall prepare any report by the Committee required by the rules of the Securities and Exchange Commission to be included in the Company’s annual proxy statement or annual report on Form 10-K.

11.Stock Ownership Requirements. The Committee may establish and administer stock ownership requirements for the Company’s officers and other employees. The Committee may make appropriate recommendations to the Board with respect to stock ownership requirements for directors.

12.Review of Other Matters. The Committee shall review and discuss such other matters that relate to the accounting, auditing and financial reporting practices and procedures of the Company as the Committee may, in its own discretion, deem desirable in connection with the review functions described above.

3

13.Other Duties. The Committee shall perform any other duties or responsibilities delegated to the Committee by the Board from time to time.

14.Reports to the Board. The Committee shall report regularly to the Board.

15.Annual Evaluation. The Committee shall conduct and review with the Board annually an evaluation of the Committee’s performance.

4

EX-99.3

Exhibit 99.3

ZALE CORPORATION

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER

(As of December 2011)

Purposes

The primary purposes of the Nominating and Corporate Governance Committee are to ensure that (1) the Company’s Board consists primarily of qualified independent directors and (2) the Company and its Board follow the best possible corporate governance practices. Its responsibilities in that regard include:

·Identifying individuals qualified to become members of the Board and to recommend to the Board candidates for election or reelection as directors;

·Monitoring and recommending corporate governance and other board practices; and

·Overseeing performance reviews of the Board, its committees and the individual members of the Board.

In discharging its duties, the Committee is empowered to investigate any matter brought to its attention with full access to all Company books, records, facilities, personnel, legal counsel and independent auditors, along with the sole power to retain and terminate outside counsel or other experts for this purpose. The Committee shall have sole authority to approve any search firm’s fees and other retention terms.

The Committee shall review the adequacy of this charter on an annual basis and recommend any appropriate changes to the Board for consideration.

Membership

Appointment and Removal. The Committee shall be appointed by the Board and shall serve at the pleasure of the Board for such term as the Board may decide or, with respect to an individual Committee member, until such Committee member is no longer a Board member. The Board shall designate the chairperson of the Committee.

Number and Meetings. The Committee shall be comprised of not less than two members of the Board. The Committee shall meet as often as necessary to fulfill its responsibilities. The Committee may appoint subcommittees and may delegate its responsibilities to a subcommittee to the extent it deems appropriate.

Independence. The Committee members will each qualify as “independent” under the rules of the New York Stock Exchange. These requirements as currently in effect are summarized in Annex A hereto. Accordingly, the members of the Committee will be directors who the Board affirmatively concludes have no material relationship to the Company, as determined by the Board, either directly or as a partner, shareholder or officer of any organization that has a relationship with the Company.

The failure of the Committee to satisfy the independence requirements set forth above shall not invalidate any actions taken by the Committee.

Responsibilities

The following functions shall be the common, recurring activities of the Committee in carrying out its duties.

Nominating Responsibilities

1.The Committee shall lead the Company’s search for individuals qualified to become members of the Board.

2.The Committee shall evaluate and recommend to the Board for nomination candidates for election or reelection as directors.

3.In the event of a vacancy on the Board, or if the Committee becomes aware of a pending vacancy and the Board determines that such vacancy shall be filled by the Board, the Committee shall recommend to the Board a qualified individual for appointment to the Board.

4.The Committee shall establish and oversee appropriate director orientation and continuing education programs.

5.In assessing the qualification of a candidate, the Committee generally shall observe the following guidelines:

·The only candidates who at the time of their initial election may be non-independent are the Chief Executive Officer of the Company and up to one other executive officer of the Company. The remaining directors shall be independent at the time of their initial election, but shall not be disqualified from reelection as a result of subsequently no longer being independent, provided that at all times a substantial majority of the directors shall be independent. In assessing independence the Committee shall consider the requirements on New York Stock Exchange rules and such other factors as it deems advisable.

·A majority of the directors should be active or retired senior executives (or the equivalent) of other significant companies, educational institutions, governmental agencies, service providers or non-profit organizations. Directors shall not be a director, consultant or employee of or to any direct competitor of the Company without prior approval of the Board.

·In considering candidates, the Committee shall consider their other obligations and time commitments and their ability to attend meetings in person.

·In the event that the Chairman, other than the current Chairman at the time of the initial adoption of this Charter, is not independent, the Committee shall recommend another director to serve as the “lead independent director.”

·To avoid potential conflicts of interest, interlocking directorships will not be allowed. Interlocking directorships shall be deemed to occur if a senior executive officer of the Company serves on the board of or as a trustee of a

2

company or institution that employs one or more directors (i.e., reciprocal directorships).

·In assessing whether to re-nominate an incumbent director, the Committee shall consider the level of the director’s holdings of Zale common stock. Generally, subject to unusual personal circumstances, a director should hold shares of Zale common stock having a fair market value of at least $200,000 within five years following his or her election and shall maintain not less than such level of stock ownership while serving as a director of the Company. Additionally, other than for the purpose of paying taxes on equity interests that vest under the Company’s benefit plans, directors should not dispose of any shares of Zale common stock until the foregoing stock ownership level is achieved.

Corporate Governance Responsibilities

1.             The Committee shall, from time to time, as the Committee deems appropriate, make recommendations to the Board regarding an appropriate Board organization and structure.

2.             The Committee shall, from time to time, as the Committee deems appropriate, evaluate the size, composition, membership qualifications, scope of authority, responsibilities, reporting obligations and charters of each committee of the Board.

3.             The Committee shall periodically review and assess the adequacy of the Company’s corporate governance principles as contained in this Charter. Should the Committee deem it appropriate, it may develop and recommend to the Board for adoption additional corporate governance principles.

4.             The Committee shall periodically review the Company’s Certificate of Incorporation and Bylaws in light of existing corporate governance trends, and shall recommend any proposed changes for adoption by the Board or submission by the Board to the Company’s stockholders.

5.             The Committee may make recommendations on the structure and logistics of board meetings and may recommend matters for consideration by the Board.

6.             The Committee shall consider, adopt and oversee all processes for evaluating the performance of the Board, each committee and individual directors.

7.             The Committee shall annually review and assess its own performance.

8.             The Committee shall oversee the development of a Chief Executive Officer succession plan, under which, among other things, the Board will receive periodic reports from management on the development of other members of senior management.

3

General

1.             The Committee shall review and discuss such other matters that relate to the accounting, auditing and financial reporting practices and procedures of the Company as the Committee may, in its own discretion, deem desirable in connection with the review functions described above.

2.             The Committee shall perform any other duties or responsibilities delegated to the Committee by the Board from time to time.

3.             The Committee shall report regularly to the Board.

4.             The Committee shall conduct and review with the Board annually an evaluation of the Committee’s performance.

4

Annex A

Nominating and Corporate Governance Committee

Independence Requirements

NYSE Rules. No director qualifies as “independent” unless the Board affirmatively determines that the director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). In addition, the following directors shall not satisfy the definition of “independent”:

(i)A director who is an employee, or whose immediate family member is an executive officer, of the Company is not independent until three years after the end of such employment relationship.

(ii)A director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not independent until three years after he or she ceases to receive more than $120,000 per year in such compensation.

(iii)A director who is affiliated with or employed by, or whose immediate family member is affiliated with or employed in a professional capacity by, a present or former internal or external auditor of the Company is not “independent” until three years after the end of the affiliation or the employment or auditing relationship.

(iv)A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company’s present executives serve on that company’s compensation committee is not “independent” until three years after the end of such service or the employment relationship.

(v)A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues, is not “independent” until three years after falling below such threshold.

5

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OTHER LIABILITIES

12 Months Ended

Jul. 31, 2013

OTHER LIABILITIES

OTHER LIABILITIES

10. OTHER LIABILITIES

        Other liabilities consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Deferred income(a)	$	38,000	$	—
Long-term straight-line rent		23,467		27,110
Credit insurance reserves		5,592		5,527
Deferred tax liability		5,998		5,727
	$	73,057	$	38,364

(a)

Represents commencement payment received in July 2013 associated with the signing of the ADS Agreement (see Note 1).

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 6) (Merchandise purchases, Supplier concentration risk)	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012
Concentrations of Business and Credit Risk
Percentage of merchandise requirements that were assembled by internal manufacturing organization	13.00%	16.00%
Top five vendors
Concentrations of Business and Credit Risk
Concentration risk (as a percent)	22.00%	22.00%
Number of significant vendors disclosed as concentration risk	5	5
Maximum percentage of purchases from any single vendor	10.00%	10.00%

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jul. 31, 2013	Jul. 31, 2012
Current assets:
Cash and cash equivalents	$ 17,060	$ 24,603
Merchandise inventories	767,540	741,788
Other current assets	52,620	46,690
Total current assets	837,220	813,081
Property and equipment, net	108,875	122,124
Goodwill	98,372	100,544
Other assets	35,678	47,790
Deferred tax asset	107,110	96,929
Total assets	1,187,255	1,180,468
Current liabilities:
Accounts payable and accrued liabilities	220,558	205,082
Deferred revenue	82,110	85,714
Deferred tax liability	107,016	96,662
Total current liabilities	409,684	387,458
Long-term debt	410,050	452,908
Deferred revenue - long-term	109,135	122,802
Other liabilities	73,057	38,364
Commitments and contingencies
Stockholders' investment:
Common stock, par value $0.01, 150,000 shares authorized; 54,732 shares issued; 32,639 and 32,220 shares outstanding at July 31, 2013 and 2012, respectively	488	488
Additional paid-in capital	155,625	162,711
Accumulated other comprehensive income	47,015	53,369
Accumulated earnings	435,140	425,128
Total stockholders' investment before treasury stock	638,268	641,696
Treasury stock, at cost, 22,093 and 22,512 shares at July 31, 2013 and 2012, respectively	(452,939)	(462,760)
Total stockholders' investment	185,329	178,936
Total liabilities and stockholders' investment	$ 1,187,255	$ 1,180,468

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OTHER CURRENT ASSETS

12 Months Ended

Jul. 31, 2013

OTHER CURRENT ASSETS

OTHER CURRENT ASSETS

3. OTHER CURRENT ASSETS

        Other current assets consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Prepaid rent	$	19,666	$	19,738
Prepaid advertising		4,887		704
Tax receivables		8,104		9,711
Deferred tax asset		3,495		4,150
Other		16,468		12,387
	$	52,620	$	46,690

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SEGMENTS

12 Months Ended

Jul. 31, 2013

SEGMENTS

SEGMENTS

17. 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.

	Year Ended July 31,
Selected Financial Data by Segment	2013			2012			2011
	(amounts in thousands)
Revenues:
Fine Jewelry(a)	$	1,637,359		$	1,617,684		$	1,493,294
Kiosk		239,722			238,692			239,231
All Other		10,935			10,502			10,038
Total revenues	$	1,888,016		$	1,866,878		$	1,742,563
Depreciation and amortization:
Fine Jewelry	$	22,230		$	23,924		$	28,009
Kiosk		2,694			3,153			3,361
All Other		—			—			—
Unallocated		8,846			10,810			9,956
Total depreciation and amortization	$	33,770		$	37,887		$	41,326
Operating earnings (loss):
Fine Jewelry(b)	$	49,112		$	31,464		$	(15,875	)
Kiosk		15,915			14,850			15,270
All Other		5,226			5,091			5,184
Unallocated(c)		(35,135	)		(32,287	)		(32,445	)
Total operating earnings (loss)	$	35,118		$	19,118		$	(27,866	)
Assets(d):
Fine Jewelry(e)	$	852,308		$	821,427		$	807,771
Kiosk		73,975			85,828			85,999
All Other		27,725			38,110			40,406
Unallocated		233,247			235,103			254,582
Total assets	$	1,187,255		$	1,180,468		$	1,188,758
Capital expenditures:
Fine Jewelry	$	16,513		$	13,843		$	8,818
Kiosk		546			—			—
All Other		—			—			—
Unallocated		5,970			5,932			6,497
Total capital expenditures	$	23,029		$	19,775		$	15,315

(a)

Includes $316.9 million, $313.0 million and $298.1 million in fiscal years 2013, 2012 and 2011, respectively, related to foreign operations. In addition, fiscal year 2012 includes a $34.9 million adjustment as a result of a change in the revenue recognition related to lifetime warranties.

(b)

Includes $1.4 million, $2.0 million and $7.0 million in fiscal years 2013, 2012 and 2011, respectively, related to charges associated with store closures and store impairments. In addition, fiscal year 2012 includes $34.9 million of additional earnings as a result of a change in the revenue recognition related to lifetime warranties.

(c)

Includes credits of $63.4 million, $58.9 million and $50.8 million in fiscal years 2013, 2012 and 2011, respectively, to offset internal carrying costs charged to the segments. Fiscal year 2013 also includes a gain totaling $2.2 million related to the De Beers group settlement.

(d)

Assets allocated to segments include fixed assets, inventories, goodwill and investments held by our insurance operations. Unallocated assets include cash, prepaid assets such as rent, corporate office improvements and technology infrastructure.

(e)

Includes $31.2 million, $31.3 million and $33.4 million of fixed assets in fiscal years 2013, 2012 and 2011, respectively, related to foreign operations.

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INCOME TAXES (Details) (USD $)	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
INCOME TAXES
Federal statutory rate (as a percent)	35.00%
Reconciliation of effective income tax rate from continuing operations from federal statutory rate
Federal income tax expense (benefit) at statutory rate	$ 4,177,000	$ (8,936,000)	$ (38,750,000)
State income taxes, net of federal benefit	858,000	(2,767,000)	(4,250,000)
Tax on repatriation of foreign earnings	3,954,000	5,950,000	14,099,000
Foreign tax rate changes and differential	577,000	225,000	(1,274,000)
Change in valuation allowance	(6,977,000)	2,285,000	44,406,000
Depreciation and amortization adjustment			(8,512,000)
Other	(665,000)	4,608,000	(4,162,000)
Total current and deferred income tax expense (benefit)	1,924,000	1,365,000	1,557,000
Effective income tax rate (as a percent)	16.10%	(5.30%)	(1.40%)
Period over which Canada has reduced federal and provincial tax rates	3 years
Current income tax expense (benefit):
Federal	232,000	349,000	(9,628,000)
Foreign	1,131,000	664,000	5,003,000
State	(604,000)	(1,206,000)	910,000
Total current income tax expense (benefit)	759,000	(193,000)	(3,715,000)
Deferred income tax expense:
Federal	102,000	(166,000)	5,114,000
Foreign	986,000	1,675,000	159,000
State	77,000	49,000	(1,000)
Total deferred income tax expense	1,165,000	1,558,000	5,272,000
Total current and deferred income tax expense (benefit)	1,924,000	1,365,000	1,557,000
Assets:
Accrued liabilities	78,754,000	84,515,000
Inventory reserves	7,220,000	7,083,000
Deferred income	14,033,000
Net operating loss carryforward	100,407,000	120,277,000
Stock-based compensation	7,067,000	7,160,000
Investments in subsidiaries	3,177,000	1,752,000
Foreign tax credits	13,978,000	12,609,000
Property and equipment	9,355,000	9,326,000
Other	2,854,000	5,986,000
Total deferred tax assets	236,845,000	248,708,000
Valuation allowances	(92,149,000)	(98,995,000)
Total deferred tax assets, net	144,696,000	149,713,000
Liabilities:
Merchandise inventories, principally due to LIFO reserve	(129,273,000)	(119,256,000)
Undistributed earnings		(13,973,000)
Goodwill	(13,869,000)	(13,941,000)
Other	(3,963,000)	(3,853,000)
Total deferred tax liabilities	(147,105,000)	(151,023,000)
Deferred tax liabilities, net	(2,409,000)	(1,310,000)
Deferred tax assets and liabilities in accompanying consolidated balance sheets
Other current assets	3,495,000	4,150,000
Deferred tax asset	107,110,000	96,929,000
Deferred tax liability	(107,016,000)	(96,662,000)
Other liabilities	(5,998,000)	(5,727,000)
Deferred tax liabilities, net	(2,409,000)	(1,310,000)
Most recent period for which cumulative losses incurred is to be considered	3 years
Income tax benefits related to tax refund associated with net operating loss carrybacks pursuant to WHBA			4,600,000
Income tax refunds, net of taxes paid	2,200,000	800,000	1,000,000
Unrecognized tax benefits that, if recognized, would affect the effective income tax rate	2,500,000
A reconciliation of beginning and ending balance of unrecognized tax benefits
Balance at the beginning of the period	3,631,000
Additions based on tax positions related to prior years	555,000
Settlements with tax authorities	(341,000)
Expiration of statute of limitations	(331,000)
Balance at the end of the period	3,514,000	3,631,000
Interest and penalties accrued	$ 1,500,000	$ 1,900,000	$ 2,600,000

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PROPERTY AND EQUIPMENT, NET (Details) (USD $) In Thousands, unless otherwise specified	Jul. 31, 2013	Jul. 31, 2012
PROPERTY AND EQUIPMENT, NET
Property and equipment, gross	$ 681,902	$ 696,485
Less accumulated depreciation and amortization	(573,027)	(574,361)
Property and equipment, net	108,875	122,124
Leasehold improvements
PROPERTY AND EQUIPMENT, NET
Property and equipment, gross	223,424	229,524
Furniture and fixtures
PROPERTY AND EQUIPMENT, NET
Property and equipment, gross	452,923	463,911
Construction in progress
PROPERTY AND EQUIPMENT, NET
Property and equipment, gross	$ 5,555	$ 3,050

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OTHER (GAINS) CHARGES

12 Months Ended

Jul. 31, 2013

OTHER (GAINS) CHARGES

OTHER (GAINS) CHARGES

11. OTHER (GAINS) CHARGES

        Other (gains) charges consist of the following (in thousands):

	Year Ended July 31,
	2013			2012		2011
Store impairments	$	1,119		$	1,751	$	6,762
Store closure adjustments		324			222		285
De Beers settlement		(2,191	)		—		—
	$	(748	)	$	1,973	$	7,047

        During fiscal years 2013, 2012 and 2011, we recorded charges related to the impairment of long-lived assets of underperforming stores totaling $1.1 million, $1.8 million and $6.8 million, respectively. The impairment of long-lived assets is based on the amount that the carrying value exceeds the estimated fair value of the assets. The fair value is based on future cash flow projections over the remaining lease term using a discount rate that we believe is commensurate with the risk inherent in our current business model. If actual results are not consistent with our cash flow projections, we may be required to record additional impairments. If operating earnings over the remaining lease term for each store included in our impairment test as of July 31, 2013 were to decline by 20 percent, we would be required to record additional impairments of $0.5 million.

        We have recorded lease termination charges related to certain store closures, primarily 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 July 31, 2013 and 2012.

        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 fiscal year 2013, we received proceeds totaling $2.2 million as a result of a settlement reached in the lawsuit.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Jul. 31, 2013 item	Jul. 31, 2012	Jul. 31, 2011
Basis of Presentation
Number of reportable segments	3
Number of core national brands	3
Number of regional brands	2
Number of subsidiaries engaged in providing credit insurance to credit customers	3
Merchandise Inventories
Raw materials and finished goods in distribution centers as a percentage of total inventory	16.00%
LIFO charge	$ 4.6	$ 22.4	$ 17.0
Cumulative LIFO provision	63.0	58.3
Domestic inventories, excluding cumulative LIFO provision	690.5	664.1
Canadian inventories	140.0	136.0
Consignment inventory on hand	149.1	118.4
Revenue Recognition
Percentage of merchandise sales to total revenue	90.00%
Insurance premium revenues from credit insurance subsidiaries	10.9	10.5	10.0
ADS Agreement
Selling, General and Administrative
Commencement payment	$ 38.0
Specialty retail jewelry stores
Basis of Presentation
Number of stores	1,064
Kiosk stores
Basis of Presentation
Number of stores	630

XML

GOODWILL (Details) (USD $)	12 Months Ended		6 Months Ended					6 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jan. 31, 2013 Level 3	Jan. 31, 2013 Level 3 Minimum	Jan. 31, 2013 Level 3 Maximum	Jan. 31, 2013 Peoples Jewellers	Jul. 31, 2013 Peoples Jewellers	Jan. 31, 2013 Piercing Pagoda	Jul. 31, 2013 Piercing Pagoda
GOODWILL
Impairment of goodwill						$ 0		$ 0
Goodwill	98,372,000	100,544,000					79,000,000		19,400,000
Percentage of excess of fair value of goodwill over carrying value, to be considered for potential impairment						20.00%		59.00%
Cash flow projection period used as an input in calculating fair value of goodwill			5 years
Terminal year growth rates used as an input in calculating fair value of goodwill (as a percent)			2.00%
Discount rates based on a weighted average cost of capital used as an input in calculating fair value of goodwill (as a percent)				15.30%	17.50%
Changes in the carrying amount of goodwill
Goodwill, beginning of period	100,544,000	104,620,000					79,000,000		19,400,000
Foreign currency adjustments	(2,172,000)	(4,076,000)
Goodwill, end of period	$ 98,372,000	$ 100,544,000					$ 79,000,000		$ 19,400,000

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OTHER LIABILITIES (Tables)

12 Months Ended

Jul. 31, 2013

OTHER LIABILITIES

Schedule of other liabilities

Other liabilities consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Deferred income(a)	$	38,000	$	—
Long-term straight-line rent		23,467		27,110
Credit insurance reserves		5,592		5,527
Deferred tax liability		5,998		5,727
	$	73,057	$	38,364

(a)

Represents commencement payment received in July 2013 associated with the signing of the ADS Agreement (see Note 1).

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RETIREMENT PLANS

12 Months Ended

Jul. 31, 2013

RETIREMENT PLANS

RETIREMENT PLANS

20. RETIREMENT PLANS

        We maintain the Zale Corporation Savings & Investment Plan (the "U.S. Plan") and the Zale Corporation Puerto Rico Employees Savings and Investment Plan (the "PR Plan", collectively the "Plans"). The Plans are defined contribution plans covering substantially all employees of the Company who have completed one year of service (at least 1,000 hours) and are age 21 or older. Participants in the Plans can contribute from one percent to 60 percent (30 percent for highly-compensated employees) of their annual salary subject to Internal Revenue Service and Puerto Rico Internal Revenue Code limitations. Upon satisfying all eligibility requirements, employees who have not otherwise elected will be automatically enrolled in their respective plan at a contribution rate of five percent for participants in the U.S. Plan or two percent for participants in the PR Plan as of July 31, 2013. Effective February 27, 2009, we suspended matching contributions until business conditions support the reinstatement of the matching contributions.

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DEFERRED REVENUE

12 Months Ended

Jul. 31, 2013

DEFERRED REVENUE

DEFERRED REVENUE

19. 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. ASC 605-20 requires recognition of warranty revenue on a straight-line basis until sufficient cost history exists. Once sufficient cost history is obtained, revenue is required to be recognized in proportion to when costs are expected to be incurred. Prior to fiscal year 2012, the Company recognized revenue from lifetime warranties on a straight-line basis over a five-year period because sufficient evidence of the pattern of costs incurred was not available. During the first quarter of fiscal year 2012, we began recognizing revenue related to lifetime warranty sales in proportion to when the expected costs will be incurred, which we estimate will 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. The deferred revenue balance as of July 31, 2011 related to lifetime warranties is being recognized prospectively, in proportion to the remaining estimated warranty costs. The change in estimate related to the pattern of revenue recognition and the life of the warranties was the result of accumulating additional historical evidence over the five-year period that we have been selling the lifetime warranties. The change in estimate increased revenues by $34.9 million and decreased our net loss by $32.4 million during fiscal year 2012. As a result, basic and diluted net loss per share improved by $1.00 per share during fiscal year 2012.

        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):

	Year Ended July 31,
	2013			2012
Deferred revenue, beginning of period	$	208,516		$	232,180
Warranties sold(a)		130,169			123,121
Revenue recognized		(147,440	)		(146,785	)
Deferred revenue, end of period	$	191,245		$	208,516

(a)

Warranty sales for the years ended July 31, 2013 and 2012 include approximately $0.9 million and $1.9 million, respectively, related to the depreciation in the Canadian currency rate on the beginning of the period deferred revenue balance.

        Revenues associated with warranties in fiscal years 2013, 2012 and 2011 totaled $147.4 million, $146.8 million and $96.8 million, respectively. Gross margin associated with warranties in fiscal years 2013, 2012 and 2011 totaled $120.1 million, $120.8 million and $75.2 million, respectively.

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DEFERRED REVENUE (Tables)

12 Months Ended

Jul. 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):

	Year Ended July 31,
	2013			2012
Deferred revenue, beginning of period	$	208,516		$	232,180
Warranties sold(a)		130,169			123,121
Revenue recognized		(147,440	)		(146,785	)
Deferred revenue, end of period	$	191,245		$	208,516

(a)

Warranty sales for the years ended July 31, 2013 and 2012 include approximately $0.9 million and $1.9 million, respectively, related to the depreciation in the Canadian currency rate on the beginning of the period deferred revenue balance.

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OTHER ASSETS (Tables)

12 Months Ended

Jul. 31, 2013

OTHER ASSETS

Schedule of other assets

Other assets consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Debt issuance costs	$	11,488	$	14,468
Investments in debt and equity securities		20,620		29,336
Other		3,570		3,986
	$	35,678	$	47,790

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LEASES (Tables)

12 Months Ended

Jul. 31, 2013

LEASES

Schedule of rent expenses

Rent expense from continuing operations is included in SG&A and is as follows (in thousands):

	Year Ended July 31,
	2013		2012		2011
Retail space:
Minimum rentals	$	183,266	$	184,239	$	188,766
Rentals based on sales		6,629		5,721		2,796
		189,895		189,960		191,562
Corporate headquarters		4,072		3,931		3,837
	$	193,967	$	193,891	$	195,399

Schedule of future minimum lease payments for all non-cancelable leases

Future minimum lease payments as of July 31, 2013, for all non-cancelable leases were as follows (in thousands):

Fiscal Year Ended	Capital Leases			Operating Leases
2014	$	1,184		$	173,782
2015		1,184			141,188
2016		590			112,318
2017		46			87,366
2018		—			60,340
Thereafter		—			140,806
	$	3,004		$	715,800
Less imputed interest		(154	)
Capital lease obligation	$	2,850

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2)	12 Months Ended	3 Months Ended	12 Months Ended
	Jul. 31, 2013 Optional theft protection Fine Jewelry	Oct. 31, 2011 Lifetime warranty	Jul. 31, 2013 Lifetime warranty	Jul. 31, 2011 Lifetime warranty Previous estimate	Jul. 31, 2013 Watch warranty Fine Jewelry	Jul. 31, 2013 Breakage warranty Fine Jewelry	Jul. 31, 2013 Breakage warranty Kiosk
DEFERRED REVENUE
Contract period of arrangement	2 years	8 years		5 years	2 years	1 year	1 year
Period over which additional historical evidence was accumulated supporting change in estimate			5 years
Revenue recognition period	2 years

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OTHER CURRENT ASSETS (Tables)

12 Months Ended

Jul. 31, 2013

OTHER CURRENT ASSETS

Schedule of other current assets

Other current assets consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Prepaid rent	$	19,666	$	19,738
Prepaid advertising		4,887		704
Tax receivables		8,104		9,711
Deferred tax asset		3,495		4,150
Other		16,468		12,387
	$	52,620	$	46,690

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OTHER LIABILITIES (Details) (USD $)	Jul. 31, 2013	Jul. 31, 2012
Deferred income
Long-term straight-line rent	$ 23,467,000	$ 27,110,000
Credit insurance reserves	5,592,000	5,527,000
Deferred tax liability	5,998,000	5,727,000
Other liabilities	73,057,000	38,364,000
ADS Agreement
Deferred income
Deferred income	$ 38,000,000

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CONTINGENCIES (Details) (Purported class-action lawsuits)	1 Months Ended
	Aug. 31, 2010 item	Nov. 30, 2009 item
Purported class-action lawsuits
CONTINGENCIES
Number of former officers named as defendants in lawsuits		4
Number of lawsuits filed		2
Number of cases after consolidation	1

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LONG-TERM DEBT (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012
Long-term debt
Capital leases	$ 108,875	$ 122,124
Capital lease obligations | Vehicles
Long-term debt
Useful life of vehicle	4 years
Capital leases	$ 2,900	$ 3,100

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EARNINGS (LOSS) PER COMMON SHARE (Tables)

12 Months Ended

Jul. 31, 2013

EARNINGS (LOSS) PER COMMON SHARE

Schedule of reconciliation of the diluted weighted average shares

The following table presents a reconciliation of the diluted weighted average shares (in thousands):

	Year Ended July 31,
	2013		2012		2011
Basic weighted average shares		32,429		32,196		32,129
Effect of potential dilutive securities:
Warrants		7,189		—		—
Stock options and restricted share awards		1,340		—		—
Diluted weighted average shares		40,958		32,196		32,129

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EARNINGS (LOSS) PER COMMON SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
Reconciliation of the diluted weighted average shares
Basic weighted average shares	32,429,000	32,196,000	32,129,000
Effect of potential dilutive securities:
Warrants (in shares)	7,189,000
Stock options and restricted share awards	1,340,000
Diluted weighted average shares	40,958,000	32,196,000	32,129,000
Net (earnings) loss	$ (10,012)	$ 27,310	$ 112,306
Warrants
Effect of potential dilutive securities:
Antidilutive securities (in shares)		11,100,000	11,100,000
Stock options and restricted share awards
Effect of potential dilutive securities:
Antidilutive securities (in shares)	1,200,000	5,100,000	3,000,000

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CONTINGENCIES

12 Months Ended

Jul. 31, 2013

CONTINGENCIES

CONTINGENCIES

18. CONTINGENCIES

        In November 2009, the Company and four former officers, Neal L. Goldberg, Rodney Carter, Mary E. Burton and Cynthia T. Gordon, were named as defendants in two purported class-action lawsuits filed in the United States District Court for the Northern District of Texas. On August 9, 2010, the two lawsuits were consolidated into one lawsuit, which alleged various violations of securities laws arising from the financial statement errors that led to the restatement completed by the Company as part of its Annual Report on Form 10-K for the fiscal year ended July 31, 2009. The lawsuit requested unspecified damages and costs. On August 1, 2011, the Court dismissed the lawsuit with prejudice. The plaintiffs appealed the decision and on November 30, 2012 the United States Court of Appeals upheld the trial court's decision and affirmed dismissal of the plaintiff's case. The plaintiffs did not appeal this ruling and the matter was therefore dismissed with prejudice.

        The Company is a defendant in two purported class action lawsuits, Tessa Hodge v. Zale Delaware, Inc., d/b/a Piercing Pagoda which was filed on April 23, 2013 in California Superior Court and Naomi Tapia v. Zale which was filed on July 3, 2013 in the U.S. District Court, Southern District of California. The 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. Both 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 either lawsuit.

        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.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
Cash Flows From Operating Activities:
Net earnings (loss)	$ 10,012	$ (27,310)	$ (112,306)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Non-cash interest	2,870	3,603	34,580
Depreciation and amortization	33,770	37,887	41,326
Deferred taxes	1,165	1,544	5,280
Loss on disposition of property and equipment	1,308	1,793	1,431
Impairment of property and equipment	1,119	1,751	6,762
Stock-based compensation	3,285	2,728	2,150
Loss from discontinued operations		414	264
Changes in assets and liabilities:
Merchandise inventories	(29,575)	(27,516)	(8,071)
Other current assets	(7,447)	5,877	(5,772)
Other assets	(140)	142	(1,982)
Accounts payable and accrued liabilities	15,944	(11,037)	(19,577)
Deferred revenue	(16,433)	(22,064)	10,418
Other liabilities	34,526	(4,673)	(1,449)
Net cash provided by (used in) operating activities	50,404	(36,861)	(46,946)
Cash Flows From Investing Activities:
Payments for property and equipment	(23,029)	(19,775)	(15,315)
Purchase of available-for-sale investments	(4,181)	(6,833)	(9,388)
Proceeds from sales of available-for-sale investments	12,892	8,517	6,140
Net cash used in investing activities	(14,318)	(18,091)	(18,563)
Cash Flows From Financing Activities:
Borrowings under revolving credit agreement	5,071,300	4,891,400	3,604,800
Payments on revolving credit agreement	(5,113,900)	(4,776,600)	(3,514,800)
Payments on senior secured term loan		(60,454)	(11,250)
Debt issuance costs		(7,990)
Proceeds from exercise of stock options	147	34	67
Payments on capital lease obligations	(1,016)	(527)
Net cash (used in) provided by financing activities	(43,469)	45,863	78,817
Cash Flows Used in Discontinued Operations:
Net cash used in operating activities of discontinued operations		(893)	(5,391)
Effect of exchange rate changes on cash	(160)	(540)	973
Net change in cash and cash equivalents	(7,543)	(10,522)	8,890
Cash and cash equivalents at beginning of period	24,603	35,125	26,235
Cash and cash equivalents at end of period	$ 17,060	$ 24,603	$ 35,125

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Jul. 31, 2013

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation.    References to the "Company," "we," "us," and "our" in this Form 10-K 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 July 31, 2013, we operated 1,064 specialty retail jewelry stores and 630 kiosks located mainly 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.

        Cash and Cash Equivalents.    Cash and cash equivalents include cash on hand, deposits in banks and short-term marketable securities at varying interest rates with original maturities of three months or less. Also included in cash equivalents are proceeds due from credit card transactions with settlement terms of less than five days. Under our credit card processing agreements, a portion of these proceeds are held back to serve as collateral for disputed charges. The credit card proceeds held back as of July 31, 2013 and 2012 were not material. The carrying amount of our cash equivalents approximates fair value due to the short-term maturity of those instruments.

        Merchandise Inventories.    Merchandise inventories are stated at the lower of cost or market. Substantially all U.S. inventories represent finished goods which are valued using the last-in, first-out ("LIFO") retail inventory method. Merchandise inventory of our Canadian brands, Peoples Jewellers and Mappins Jewellers, is valued using the retail inventory method. Under the retail method, inventory is segregated into categories of merchandise with similar characteristics at its current average retail selling value. The determination of inventory cost and the resulting gross margins are calculated by applying an average cost-to-retail ratio to the retail value of inventory. At the end of fiscal year 2013, approximately 16 percent of our total inventory represented raw materials and finished goods in our distribution centers. The inventory related to our manufacturing program and distribution center is valued at the weighted-average cost of those items. The LIFO charge was $4.6 million, $22.4 million and $17.0 million for the years ended July 31, 2013, 2012 and 2011, respectively. The cumulative LIFO provision reflected in the accompanying consolidated balance sheets was $63.0 million and $58.3 million at July 31, 2013 and 2012, respectively. Domestic inventories, excluding the cumulative LIFO provision, were $690.5 million and $664.1 million at July 31, 2013 and 2012, respectively. Our Canadian inventory totaled $140.0 million and $136.0 million at July 31, 2013 and 2012, respectively.

        Consignment inventory and the related contingent obligations are not reflected in our consolidated financial statements. Consignment inventory has historically consisted of test programs, merchandise at higher price points, or merchandise that otherwise does not warrant the risk of outright ownership. Consignment inventory can be returned to the vendor at any time. At the time consigned inventory is sold, we record the purchase liability in accounts payable and the related cost of merchandise in cost of sales. We had $149.1 million and $118.4 million of consignment inventory on hand at July 31, 2013 and 2012, respectively.

        We are required to determine the LIFO cost on an interim basis by estimating annual inflation trends, annual purchases and ending inventory levels for the fiscal year. Actual annual inflation rates and inventory balances as of the end of any fiscal year may differ from interim estimates. We apply internally developed indices that we believe accurately and consistently measure inflation or deflation in the components of our merchandise (i.e., the proper weighting of diamonds, gold and other metals and precious stones) and our overall merchandise mix. We believe our internally developed indices more accurately reflect inflation or deflation in our own prices than the U.S. Bureau of Labor Statistics producer price indices or other published indices.

        We also write-down the carrying value of our inventory for discontinued, slow-moving and damaged inventory. This write-down is equal to the difference between the cost of inventory and its estimated market value based upon assumptions of targeted inventory turn rates, future demand, management strategy and market conditions. If actual market conditions are less favorable than those projected by management or management strategy changes, additional inventory write-downs may be required and, in the case of a major change in strategy or downturn in market conditions, such write-downs could be significant.

        Shrinkage is estimated for the period from the last inventory date to the end of the fiscal year on a store-by-store basis. Such estimates are based on experience and the shrinkage results from the last physical inventory. Physical inventories are taken at least once annually for all store locations and the distribution centers. The shrinkage rate from the most recent physical inventory, in combination with historical experience, could impact our shrinkage reserve.

        Impairment of Long-Lived Assets.    Long-lived assets are reviewed for impairment by comparing the carrying value of the assets with their estimated undiscounted future cash flows. If the evaluation indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow method, using a discount rate that is commensurate with the risk inherent in our current business model. Assumptions are made with respect to cash flows expected to be generated by the related assets based upon the most recent projections. Any changes in key assumptions, particularly store performance or market conditions, could result in an unanticipated impairment charge. For instance, in the event of a major market downturn or adverse developments within a particular market or portion of our business, individual stores may become unprofitable, which could result in a write-down of the carrying value of the assets in those stores.

        Goodwill.    In accordance with Accounting Standards Codification ("ASC") 350, Intangibles–Goodwill and Other, we test goodwill for impairment annually, at the end of our second quarter, or more frequently if events occur which indicate a potential reduction in the fair value of a reporting unit's net assets below its carrying value. We calculate estimated fair value using the present value of future cash flows expected to be generated using a weighted-average cost of capital, terminal values and updated financial projections. If our actual results are not consistent with estimates and assumptions used to calculate fair value, we may be required to recognize a goodwill impairment. See Note 5 for additional disclosures related to goodwill.

        Revenue Recognition.    We recognize revenue in accordance with ASC 605, Revenue Recognition. Revenue related to merchandise sales, which is approximately 90 percent of total revenues, is recognized at the time of sale, reduced by a provision for sales returns. The provision for sales returns is based on historical rates of return. Repair revenues are recognized when the service is complete and the merchandise is delivered to the guests.

        Premium revenues from our insurance businesses relate to credit insurance policies sold to guests who purchase our merchandise under the customer credit programs. Insurance premium revenues from credit insurance subsidiaries were $10.9 million, $10.5 million and $10.0 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. These insurance premiums are recognized over the coverage period and included in revenues in the accompanying consolidated statements of operations.

        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. ASC 605-20, Revenue Recognition–Services ("ASC 605-20"), requires recognition of warranty revenue on a straight-line basis until sufficient cost history exists. Once sufficient cost history is obtained, revenue is required to be recognized in proportion to when costs are expected to be incurred. Prior to fiscal year 2012, the Company recognized revenue from lifetime warranties on a straight-line basis over a five-year period because sufficient evidence of the pattern of costs incurred was not available. During the first quarter of fiscal year 2012, we began recognizing revenue related to lifetime warranty sales in proportion to when the expected costs will be incurred, which we estimate will 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. The deferred revenue balance as of July 31, 2011 related to lifetime warranties is being recognized prospectively, in proportion to the remaining estimated warranty costs. The change in estimate related to the pattern of revenue recognition and the life of the warranties was the result of accumulating additional historical evidence over the five-year period that we have been selling the lifetime warranties.

        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.

        Gross Margin.    Gross margin represents net sales less cost of sales. Cost of sales includes cost related to merchandise sold, receiving and distribution, guest repairs and repairs associated with warranties.

        Selling, General and Administrative.    Included in selling, general and administrative ("SG&A") are store operating, advertising, merchandising, costs of insurance operations and general corporate overhead expenses.

        On July 9, 2013, we entered into a Private Label Credit Card Program Agreement (the "ADS Agreement") with an affiliate of Alliance Data Systems Corporation ("ADS") to provide financing to our U.S. guests to purchase merchandise through private label credit cards beginning no later than October 1, 2015. The ADS Agreement will replace our current agreement with Citibank which expires on October 1, 2015. In July 2013, we received a $38.0 million commencement payment upon signing the ADS Agreement. The commencement payment will be amortized over the initial term of the ADS Agreement as a reduction of merchant fees beginning on the commencement date of the agreement.

        Operating Leases.    Rent expense is recognized on a straight-line basis, including consideration of rent holidays, tenant improvement allowances received from the landlords and applicable rent escalations over the term of the lease. The commencement date of the rent expense is the earlier of the date when we become legally obligated for the rent payments or the date when we take possession of the building for construction purposes.

        Capital Leases.    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.

        Depreciation and Amortization.    Leasehold improvements are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets or remaining lease life, whichever is shorter, which generally range from 5 to 10 years. Fixtures and equipment are amortized using the straight-line method over the estimated useful lives of the assets, which range from 3 to 15 years. Original cost and related accumulated depreciation or amortization is removed from the accounts in the year assets are retired. Gains or losses on dispositions of property and equipment are recorded in the year of disposal and are included in SG&A in the accompanying consolidated statements of operations. Repairs and maintenance costs are expensed as incurred.

        Stock-Based Compensation.    Stock-based compensation is accounted for under ASC 718, Compensation–Stock Compensation, which requires the use of the fair value method of accounting for all stock-based compensation, including stock options. Share-based awards are recognized as compensation expense over the requisite service period.

        Stock Repurchase Program.    During fiscal year 2008, the Board of Directors authorized share repurchases of $350 million. As of July 31, 2013, $23.3 million was remaining under our stock repurchase program.

        Preferred Stock.    At July 31, 2013 and 2012, 5.0 million shares of preferred stock, par value of $0.01, were authorized. None were issued or outstanding.

        Self-Insurance.    We are self-insured for certain losses related to property insurance, general liability, workers' compensation and medical claims. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet dates. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity or frequency of claims, medical cost inflation, or fluctuations in premiums differ from our estimates, our results of operations could be impacted.

        Advertising Expenses.    Advertising is generally expensed when the advertisement is utilized and is a component of SG&A. Production costs are expensed upon the first occurrence of the advertisement. Advertising expenses were $83.6 million, $94.5 million and $76.5 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively, net of amounts contributed by vendors. Prepaid advertising at July 31, 2013 and 2012 totaled $4.9 million and $0.7 million, respectively, and is included in other current assets in the accompanying consolidated balance sheets.

        Vendor Allowances.    We receive cash or allowances from merchandise vendors primarily in connection with cooperative advertising programs and reimbursements for markdowns taken to sell the vendor's products. We have agreements in place with each vendor setting forth the specific conditions for each allowance or payment. The majority of these agreements are entered into or renewed annually at the beginning of each fiscal year. Qualifying vendor reimbursements of costs incurred to specifically advertise vendors' products are recorded as a reduction of advertising expense. All other allowances or cash payments received are recorded as a reduction to the cost of merchandise. Vendor allowances included in advertising expense totaled $1.9 million, $3.1 million and $1.0 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. Vendor allowances included in cost of sales totaled $10.1 million, $5.2 million and $3.7 million for the years ended July 31, 2013, 2012 and 2011, respectively.

        Income Taxes.    Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the tax rate changes are enacted. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not such assets will be realized.

        We file income tax returns in the U.S. federal jurisdiction, in various states and in certain foreign jurisdictions. We are subject to U.S. federal examinations by tax authorities for fiscal years ending on or after July 31, 2009. We are subject to audit by taxing authorities of most states and certain foreign jurisdictions and are subject to examination by these taxing jurisdictions for fiscal years ending on or after July 31, 2008.

        Sales Tax.    We present revenues net of taxes collected and record the taxes as a liability in the consolidated balance sheets until the taxes are remitted to the appropriate taxing authority.

        Foreign Currency.    Translation adjustments result from translating foreign subsidiaries' financial statements into U.S. dollars. Balance sheet accounts are translated at exchange rates in effect at the balance sheet date. Income statement accounts are translated at average exchange rates during the period. Resulting translation adjustments are included in the accompanying consolidated statements of comprehensive income (loss).

        During the fiscal year ended July 31, 2013 and 2011, the average Canadian currency rate appreciated by less than one percent and approximately six percent, respectively, relative to the U.S. dollar. During the fiscal year ended July 31, 2012, the average Canadian currency rate depreciated by approximately one percent relative to the U.S. dollar. The changes in the Canadian currency rates did not have a material impact on the Company's net earnings (loss) during the fiscal years ended July 31, 2013, 2012 and 2011. As a result of fluctuations in the Canadian dollar, we recorded losses totaling $0.7 million and $1.7 million and a gain totaling $1.4 million during the fiscal years ended July 31, 2013, 2012 and 2011, respectively, primarily associated with the settlement of Canadian accounts payable.

        Discontinued Operations.    In connection with the sale of the Bailey, Banks & Biddle brand in November 2007 and subsequent bankruptcy filed by the buyer, Finlay Fine Jewelry Corporation, on August 5, 2009, we remain contingently liable for certain leases for the remainder of the respective lease terms. As of July 31, 2013, the lease reserve related to the one remaining lease totaled $0.6 million.

        Concentrations of Business and Credit Risk.    During both fiscal years 2013 and 2012, we purchased approximately 22 percent of our finished merchandise from five vendors (excluding finished merchandise produced by our internal manufacturing organization) with no single vendor exceeding ten percent. In fiscal years 2013 and 2012, approximately 13 percent and 16 percent, respectively, of our merchandise requirements were assembled by our internal manufacturing organization. If purchases from these top vendors were disrupted, particularly at certain critical times during the year, our sales could be adversely affected in the short term until alternative supply arrangements could be established. As of July 31, 2013 and 2012, we had no significant concentrations of credit risk.

        Use of Estimates.    Our accounting and financial reporting policies are in conformity with U.S. generally accepted accounting principles. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. For example, unexpected changes in market conditions or a downturn in the economy could adversely affect actual results. Estimates are used in accounting for, among other things, inventory valuation, goodwill and long-lived asset valuation, LIFO inventory retail method, legal liability, credit insurance liability, product warranty, depreciation, workers' compensation, taxes and contingencies. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

        Reclassification.    Certain prior year amounts have been reclassified in the accompanying consolidated balance sheets to conform to our fiscal year 2013 presentation.

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PROPERTY AND EQUIPMENT, NET

12 Months Ended

Jul. 31, 2013

PROPERTY AND EQUIPMENT, NET

PROPERTY AND EQUIPMENT, NET

4. PROPERTY AND EQUIPMENT, NET

        Property and equipment consists of the following (in thousands):

	Year Ended July 31,
	2013			2012
Leasehold improvements	$	223,424		$	229,524
Furniture and fixtures		452,923			463,911
Construction in progress		5,555			3,050
		681,902			696,485
Less accumulated depreciation and amortization		(573,027	)		(574,361	)
	$	108,875		$	122,124

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DEFERRED REVENUE (Details) (USD $)	3 Months Ended								12 Months Ended
	Jul. 31, 2013	Apr. 30, 2013	Jan. 31, 2013	Oct. 31, 2012	Jul. 31, 2012	Apr. 30, 2012	Jan. 31, 2012	Oct. 31, 2011	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
DEFERRED REVENUE
Increase in revenue due to change in estimate related to the pattern of revenue recognition and the life of the warranties	$ 417,089,000	$ 442,708,000	$ 670,752,000	$ 357,468,000	$ 406,963,000	$ 445,170,000	$ 663,762,000	$ 350,983,000	$ 1,888,016,000	$ 1,866,878,000	$ 1,742,563,000
Net loss decreased due to change in estimate related to the pattern of revenue recognition and the life of the warranties									10,012,000	(27,310,000)	(112,306,000)
Change in deferred revenue associated with the sale of warranties
Deferred revenue, beginning of period				208,516,000				232,180,000	208,516,000	232,180,000
Warranties sold									130,169,000	123,121,000
Revenue recognized									(147,440,000)	(146,785,000)	(96,800,000)
Deferred revenue, end of period	191,245,000				208,516,000				191,245,000	208,516,000	232,180,000
Translation adjustment for fluctuation in Canadian currency rate (amounts included in warranties sold)									(900,000)	(1,900,000)
Gross margin									120,100,000	120,800,000	75,200,000
Fine Jewelry
DEFERRED REVENUE
Increase in revenue due to change in estimate related to the pattern of revenue recognition and the life of the warranties									1,637,359,000	1,617,684,000	1,493,294,000
Kiosk
DEFERRED REVENUE
Increase in revenue due to change in estimate related to the pattern of revenue recognition and the life of the warranties									239,722,000	238,692,000	239,231,000
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
Period over which additional historical evidence was accumulated supporting change in estimate									5 years
Lifetime warranty | Previous estimate
DEFERRED REVENUE
Contract period of arrangement											5 years
Lifetime warranty | Change in estimate
DEFERRED REVENUE
Increase in revenue due to change in estimate related to the pattern of revenue recognition and the life of the warranties										34,900,000
Net loss decreased due to change in estimate related to the pattern of revenue recognition and the life of the warranties										32,400,000
Basic and diluted net loss per share improved due to change in estimate related to the pattern of revenue recognition and the life of the warranties (in dollars per share)										$ 1.00
Lifetime warranty | Fine Jewelry | Change in estimate
DEFERRED REVENUE
Increase in revenue due to change in estimate related to the pattern of revenue recognition and the life of the warranties										$ 34,900,000
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

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FAIR VALUE MEASUREMENTS

12 Months Ended

Jul. 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, 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 that are Measured at Fair Value on a Recurring Basis

        The following tables include our assets that are measured at fair value on a recurring basis (in thousands):

	Fair Value as of July 31, 2013
	Level 1		Level 2		Level 3
U.S. Treasury securities	$	14,436	$	—	$	—
U.S. government agency securities		—		2,687		—
Corporate bonds and notes		—		828		—
Corporate equity securities		2,669		—		—
	$	17,105	$	3,515	$	—

	Fair Value as of July 31, 2012
	Level 1		Level 2		Level 3
U.S. Treasury securities	$	21,109	$	—	$	—
U.S. government agency securities		—		2,920		—
Corporate bonds and notes		—		1,314		—
Corporate equity securities		3,993		—		—
	$	25,102	$	4,234	$	—

        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 7 for additional information related to our investments).

• Assets that are Measured at Fair Value on a Nonrecurring Basis

        Impairment losses related to store-level property and equipment 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 of 15.3 percent to 17.5 percent and positive comparable store sales growth assumptions, and therefore are classified as a Level 3 measurement in the fair value hierarchy. For the fiscal year ended July 31, 2013, store-level property and equipment of $1.2 million was written down to their fair value of $0.1 million, resulting in an impairment charge of $1.1 million. For the fiscal year ended July 31, 2012, store-level property and equipment of $2.2 million was written down to their fair value of $0.4 million, resulting in an impairment charge of $1.8 million.

• 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 July 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.

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INCOME TAXES (Tables)

12 Months Ended

Jul. 31, 2013

INCOME TAXES

Schedule of reconciliation of effective income tax rate from continuing operations

The effective income tax rate from continuing operations varies from the federal statutory rate of 35 percent as follows (in thousands):

	Year Ended July 31,
	2013			2012			2011
Federal income tax expense (benefit) at statutory rate	$	4,177		$	(8,936	)	$	(38,750	)
State income taxes, net of federal benefit		858			(2,767	)		(4,250	)
Tax on repatriation of foreign earnings		3,954			5,950			14,099
Foreign tax rate changes and differential(a)		577			225			(1,274	)
Change in valuation allowance		(6,977	)		2,285			44,406
Depreciation and amortization adjustment(b)		—			—			(8,512	)
Other		(665	)		4,608			(4,162	)
Income tax expense	$	1,924		$	1,365		$	1,557
Effective income tax rate		16.1	%		(5.3	)%		(1.4	)%

(a)

For the past three years, Canada has reduced both its federal statutory and provincial tax rates. In fiscal year 2012, Puerto Rico reduced its federal statutory tax rate. Foreign tax rate differential represents the difference between the statutory tax rate in the U.S. and the statutory tax rates in Canada and Puerto Rico.

(b)

The $8.5 million adjustment in fiscal year 2011 was fully offset with a valuation allowance, resulting in no impact to the consolidated statement of operations.

Schedule of provision for income tax from continuing operations

The provision for income taxes from continuing operations consists of the following (in thousands):

	Year Ended July 31,
	2013			2012			2011
Current income tax expense (benefit):
Federal	$	232		$	349		$	(9,628	)
Foreign		1,131			664			5,003
State		(604	)		(1,206	)		910
Total current income tax expense (benefit)		759			(193	)		(3,715	)
Deferred income tax expense:
Federal		102			(166	)		5,114
Foreign		986			1,675			159
State		77			49			(1	)
Total deferred income tax expense		1,165			1,558			5,272
	$	1,924		$	1,365		$	1,557

Schedule of significant components of the deferred tax assets and deferred tax liabilities

Tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at July 31, 2013 and 2012, respectively, are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Assets:
Accrued liabilities	$	78,754		$	84,515
Inventory reserves		7,220			7,083
Deferred income		14,033			—
Net operating loss carryforward		100,407			120,277
Stock-based compensation		7,067			7,160
Investments in subsidiaries		3,177			1,752
Foreign tax credits		13,978			12,609
Property and equipment		9,355			9,326
Other		2,854			5,986
Total deferred tax assets		236,845			248,708
Valuation allowances		(92,149	)		(98,995	)
Total deferred tax assets, net	$	144,696		$	149,713
Liabilities:
Merchandise inventories, principally due to LIFO reserve	$	(129,273	)	$	(119,256	)
Undistributed earnings		—			(13,973	)
Goodwill		(13,869	)		(13,941	)
Other		(3,963	)		(3,853	)
Total deferred tax liabilities		(147,105	)		(151,023	)
Deferred tax liabilities, net	$	(2,409	)	$	(1,310	)

Deferred tax assets and liabilities in the accompanying consolidated balance sheets

Deferred tax assets and liabilities in the accompanying consolidated balance sheets are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Other current assets	$	3,495		$	4,150
Deferred tax asset		107,110			96,929
Deferred tax liability		(107,016	)		(96,662	)
Other liabilities		(5,998	)		(5,727	)
Deferred tax liabilities, net	$	(2,409	)	$	(1,310	)

Schedule of reconciliation of the beginning and ending balance of unrecognized tax benefits

A reconciliation of the fiscal year 2013 beginning and ending balance of unrecognized tax benefits is as follows (in thousands):

	Unrecognized Tax Benefits
Balance at July 31, 2012	$	3,631
Additions based on tax positions related to prior years		555
Settlements with tax authorities		(341	)
Expiration of statute of limitations		(331	)
Balance at July 31, 2013	$	3,514

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QUARTERLY RESULTS FROM CONTINUING OPERATIONS (UNAUDITED)

12 Months Ended

Jul. 31, 2013

QUARTERLY RESULTS FROM CONTINUING OPERATIONS (UNAUDITED)

QUARTERLY RESULTS FROM CONTINUING OPERATIONS (UNAUDITED)

21. QUARTERLY RESULTS FROM CONTINUING OPERATIONS (UNAUDITED)

        Unaudited quarterly results from continuing operations for the fiscal years ended July 31, 2013 and 2012 were as follows (in thousands, except per share data):

	Fiscal Year 2013 For the Three Months Ended
	July 31, 2013			April 30, 2013		January 31, 2013		October 31, 2012
Revenues	$	417,089		$	442,708	$	670,752	$	357,468
Gross margin		221,582			232,847		339,651		190,335
(Loss) earnings from continuing operations(a)		(7,984	)		5,052		41,208		(28,265	)
(Loss) earnings per basic share from continuing operations		(0.25	)		0.16		1.27		(0.88	)
(Loss) earnings per diluted share from continuing operations		(0.25	)		0.13		1.02		(0.88	)

	Fiscal Year 2012 For the Three Months Ended
	July 31, 2012			April 30, 2012			January 31, 2012		October 31, 2011
Revenues	$	406,963		$	445,170		$	663,762	$	350,983
Gross margin		209,885			228,193			335,512		187,674
(Loss) earnings from continuing operations(b)		(19,665	)		(4,440	)		28,930		(31,720	)
(Loss) earnings per basic share from continuing operations		(0.61	)		(0.14	)		0.90		(0.99	)
(Loss) earnings per diluted share from continuing operations		(0.61	)		(0.14	)		0.78		(0.99	)

(a)

The earnings (loss) from continuing operations for the first and third quarters include gains totaling $1.9 million and $0.3 million, respectively, related to the De Beers settlement.

(b)

The loss from continuing operations for the fourth quarter includes costs incurred related to the debt refinancing transactions totaling $5.0 million.

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PROPERTY AND EQUIPMENT, NET (Tables)

12 Months Ended

Jul. 31, 2013

PROPERTY AND EQUIPMENT, NET

Schedule of property and equipment, net

Property and equipment consists of the following (in thousands):

	Year Ended July 31,
	2013			2012
Leasehold improvements	$	223,424		$	229,524
Furniture and fixtures		452,923			463,911
Construction in progress		5,555			3,050
		681,902			696,485
Less accumulated depreciation and amortization		(573,027	)		(574,361	)
	$	108,875		$	122,124

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SEGMENTS (Details) (USD $)	3 Months Ended								12 Months Ended
	Jul. 31, 2013	Apr. 30, 2013	Jan. 31, 2013	Oct. 31, 2012	Jul. 31, 2012	Apr. 30, 2012	Jan. 31, 2012	Oct. 31, 2011	Jul. 31, 2013 item	Jul. 31, 2012	Jul. 31, 2011
SEGMENTS
Number of business segments									3
SEGMENTS
Total revenues	$ 417,089,000	$ 442,708,000	$ 670,752,000	$ 357,468,000	$ 406,963,000	$ 445,170,000	$ 663,762,000	$ 350,983,000	$ 1,888,016,000	$ 1,866,878,000	$ 1,742,563,000
Total depreciation and amortization									33,770,000	37,887,000	41,326,000
Total operating earnings (loss)									35,118,000	19,118,000	(27,866,000)
Total assets	1,187,255,000				1,180,468,000				1,187,255,000	1,180,468,000	1,188,758,000
Total capital expenditures									23,029,000	19,775,000	15,315,000
Charges associated with store closures and store impairments									(748,000)	1,973,000	7,047,000
De Beers settlement		300,000		1,900,000					2,191,000
Lifetime warranty | Change in estimate
SEGMENTS
Total revenues										34,900,000
Fine Jewelry
SEGMENTS
Total revenues									1,637,359,000	1,617,684,000	1,493,294,000
Total depreciation and amortization									22,230,000	23,924,000	28,009,000
Total operating earnings (loss)									49,112,000	31,464,000	(15,875,000)
Total assets	852,308,000				821,427,000				852,308,000	821,427,000	807,771,000
Total capital expenditures									16,513,000	13,843,000	8,818,000
Revenue related to foreign operations									316,900,000	313,000,000	298,100,000
Charges associated with store closures and store impairments									1,400,000	2,000,000	7,000,000
Fixed assets related to foreign operations	31,200,000				31,300,000				31,200,000	31,300,000	33,400,000
Fine Jewelry | Lifetime warranty | Change in estimate
SEGMENTS
Total revenues										34,900,000
Kiosk
SEGMENTS
Total revenues									239,722,000	238,692,000	239,231,000
Total depreciation and amortization									2,694,000	3,153,000	3,361,000
Total operating earnings (loss)									15,915,000	14,850,000	15,270,000
Total assets	73,975,000				85,828,000				73,975,000	85,828,000	85,999,000
Total capital expenditures									546,000
All Other
SEGMENTS
Total revenues									10,935,000	10,502,000	10,038,000
Total operating earnings (loss)									5,226,000	5,091,000	5,184,000
Total assets	27,725,000				38,110,000				27,725,000	38,110,000	40,406,000
Unallocated
SEGMENTS
Total depreciation and amortization									8,846,000	10,810,000	9,956,000
Total operating earnings (loss)									(35,135,000)	(32,287,000)	(32,445,000)
Total assets	233,247,000				235,103,000				233,247,000	235,103,000	254,582,000
Total capital expenditures									5,970,000	5,932,000	6,497,000
Internal carrying costs offset									63,400,000	58,900,000	50,800,000
De Beers settlement									$ 2,200,000

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LONG-TERM DEBT (Tables)

12 Months Ended

Jul. 31, 2013

LONG-TERM DEBT

Schedule of long-term debt

Long-term debt consists of the following (in thousands):

	Year Ended July 31,
	2013		2012
Revolving credit agreement	$	327,200	$	369,800
Senior secured term loan		80,000		80,000
Capital lease obligations		2,850		3,108
	$	410,050	$	452,908

Schedule of the interest rate swaps executed

Period	Notional Amount (in thousands)		Fixed Interest Rate
October 2013 - July 2014	$	215,000		0.29	%
August 2014 - July 2016	$	215,000		1.19	%

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
Changes in the composition of accumulated other comprehensive income
Balance at the beginning of the period	$ 53,369
Cumulative translation adjustment	(5,685)	(9,668)	14,190
Unrealized gain on securities	34	628	924
Reclassification to earnings	(703)	(242)	(169)
Balance at the end of the period	47,015	53,369
Cumulative Translation Adjustment
Changes in the composition of accumulated other comprehensive income
Balance at the beginning of the period	50,822	60,490	46,300
Cumulative translation adjustment	(5,685)	(9,668)	14,190
Balance at the end of the period	45,137	50,822	60,490
Unrealized Gain on Securities
Changes in the composition of accumulated other comprehensive income
Balance at the beginning of the period	2,547	2,161	1,406
Unrealized gain on securities	34	628	924
Reclassification to earnings	(703)	(242)	(169)
Balance at the end of the period	1,878	2,547	2,161
Total Accumulated Other Comprehensive Income
Changes in the composition of accumulated other comprehensive income
Balance at the beginning of the period	53,369	62,651	47,706
Cumulative translation adjustment	(5,685)	(9,668)	14,190
Unrealized gain on securities	34	628	924
Reclassification to earnings	(703)	(242)	(169)
Balance at the end of the period	$ 47,015	$ 53,369	$ 62,651

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OTHER CURRENT ASSETS (Details) (USD $) In Thousands, unless otherwise specified	Jul. 31, 2013	Jul. 31, 2012
OTHER CURRENT ASSETS
Prepaid rent	$ 19,666	$ 19,738
Prepaid advertising	4,887	704
Tax receivables	8,104	9,711
Deferred tax asset	3,495	4,150
Other	16,468	12,387
Other current assets	$ 52,620	$ 46,690

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $)	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2008
Stock Repurchase Program
Authorized amount of stock repurchase				$ 350,000,000
Remaining authorized amount of stock repurchase	23,300,000
Preferred Stock
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, par value per share (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Advertising Expenses
Advertising expenses	83,600,000	94,500,000	76,500,000
Prepaid advertising	4,887,000	704,000
Vendor Allowances
Vendor allowance included in advertising expenses	1,900,000	3,100,000	1,000,000
Vendor allowance included in cost of sales	$ 10,100,000	$ 5,200,000	$ 3,700,000
Leasehold improvements | Minimum
Depreciation and amortization
Estimated useful lives	5 years
Leasehold improvements | Maximum
Depreciation and amortization
Estimated useful lives	10 years
Fixtures and equipment | Minimum
Depreciation and amortization
Estimated useful lives	3 years
Fixtures and equipment | Maximum
Depreciation and amortization
Estimated useful lives	15 years
Vehicles
Depreciation and amortization
Estimated useful lives	4 years

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SEGMENTS (Tables)

12 Months Ended

Jul. 31, 2013

SEGMENTS

Schedule of selected financial data by segment

	Year Ended July 31,
Selected Financial Data by Segment	2013			2012			2011
	(amounts in thousands)
Revenues:
Fine Jewelry(a)	$	1,637,359		$	1,617,684		$	1,493,294
Kiosk		239,722			238,692			239,231
All Other		10,935			10,502			10,038
Total revenues	$	1,888,016		$	1,866,878		$	1,742,563
Depreciation and amortization:
Fine Jewelry	$	22,230		$	23,924		$	28,009
Kiosk		2,694			3,153			3,361
All Other		—			—			—
Unallocated		8,846			10,810			9,956
Total depreciation and amortization	$	33,770		$	37,887		$	41,326
Operating earnings (loss):
Fine Jewelry(b)	$	49,112		$	31,464		$	(15,875	)
Kiosk		15,915			14,850			15,270
All Other		5,226			5,091			5,184
Unallocated(c)		(35,135	)		(32,287	)		(32,445	)
Total operating earnings (loss)	$	35,118		$	19,118		$	(27,866	)
Assets(d):
Fine Jewelry(e)	$	852,308		$	821,427		$	807,771
Kiosk		73,975			85,828			85,999
All Other		27,725			38,110			40,406
Unallocated		233,247			235,103			254,582
Total assets	$	1,187,255		$	1,180,468		$	1,188,758
Capital expenditures:
Fine Jewelry	$	16,513		$	13,843		$	8,818
Kiosk		546			—			—
All Other		—			—			—
Unallocated		5,970			5,932			6,497
Total capital expenditures	$	23,029		$	19,775		$	15,315

(a)

Includes $316.9 million, $313.0 million and $298.1 million in fiscal years 2013, 2012 and 2011, respectively, related to foreign operations. In addition, fiscal year 2012 includes a $34.9 million adjustment as a result of a change in the revenue recognition related to lifetime warranties.

(b)

Includes $1.4 million, $2.0 million and $7.0 million in fiscal years 2013, 2012 and 2011, respectively, related to charges associated with store closures and store impairments. In addition, fiscal year 2012 includes $34.9 million of additional earnings as a result of a change in the revenue recognition related to lifetime warranties.

(c)

Includes credits of $63.4 million, $58.9 million and $50.8 million in fiscal years 2013, 2012 and 2011, respectively, to offset internal carrying costs charged to the segments. Fiscal year 2013 also includes a gain totaling $2.2 million related to the De Beers group settlement.

(d)

Assets allocated to segments include fixed assets, inventories, goodwill and investments held by our insurance operations. Unallocated assets include cash, prepaid assets such as rent, corporate office improvements and technology infrastructure.

(e)

Includes $31.2 million, $31.3 million and $33.4 million of fixed assets in fiscal years 2013, 2012 and 2011, respectively, related to foreign operations.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net earnings (loss)	$ 10,012	$ (27,310)	$ (112,306)
Foreign currency translation adjustment	(5,685)	(9,668)	14,190
Reclassification of gain on sale of securities to earnings	(703)	(242)	(169)
Unrealized gain on securities, net	34	628	924
Comprehensive income (loss)	$ 3,658	$ (36,592)	$ (97,361)

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INVESTMENTS

12 Months Ended

Jul. 31, 2013

INVESTMENTS

INVESTMENTS

7. 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):

	Year Ended July 31, 2013				Year Ended July 31, 2012
	Cost		Fair Value		Cost		Fair Value
U.S. Treasury securities	$	13,501	$	14,436	$	19,423	$	21,109
U.S. government agency securities		2,543		2,687		2,673		2,920
Corporate bonds and notes		756		828		1,192		1,314
Corporate equity securities		1,942		2,669		3,501		3,993
	$	18,742	$	20,620	$	26,789	$	29,336

        At July 31, 2013 and 2012, the carrying value of investments included a net unrealized gain of $1.9 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. The net realized gains totaled $0.7 million in fiscal year 2013 and $0.2 million in fiscal years 2012 and 2011. Investments with a carrying value of $7.4 million were on deposit with various state insurance departments at both July 31, 2013 and 2012, respectively, as required by law.

        Debt securities outstanding as of July 31, 2013 mature as follows (in thousands):

	Year Ended July 31,
	Cost		Fair Value
Less than one year	$	3,610	$	3,682
Year two through year five		9,178		10,017
Year six through year ten		3,944		4,174
After ten years		68		78
	$	16,800	$	17,951

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Jul. 31, 2013	Jul. 31, 2012
CONSOLIDATED BALANCE SHEETS
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares authorized	150,000	150,000
Common stock, shares issued	54,732	54,732
Common stock, shares outstanding	32,639	32,220
Treasury stock, shares	22,093	22,512

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OTHER ASSETS (Details) (USD $) In Thousands, unless otherwise specified	Jul. 31, 2013	Jul. 31, 2012
OTHER ASSETS
Debt issuance costs	$ 11,488	$ 14,468
Investments in debt and equity securities	20,620	29,336
Other	3,570	3,986
Other assets	$ 35,678	$ 47,790

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues	$ 1,888,016	$ 1,866,878	$ 1,742,563
Cost of sales	903,602	905,613	862,468
Gross margin	984,414	961,265	880,095
Selling, general and administrative	916,274	902,287	859,588
Depreciation and amortization	33,770	37,887	41,326
Other (gains) charges	(748)	1,973	7,047
Operating earnings (loss)	35,118	19,118	(27,866)
Interest expense	23,182	44,649	82,619
Earnings (loss) before income taxes	11,936	(25,531)	(110,485)
Income tax expense	1,924	1,365	1,557
Earnings (loss) from continuing operations	10,012	(26,896)	(112,042)
Loss from discontinued operations, net of taxes		(414)	(264)
Net earnings (loss)	$ 10,012	$ (27,310)	$ (112,306)
Basic net earnings (loss) per common share:
Earnings (loss) from continuing operations (in dollars per share)	$ 0.31	$ (0.84)	$ (3.49)
Loss from discontinued operations (in dollars per share)		$ (0.01)	$ (0.01)
Net earnings (loss) per share (in dollars per share)	$ 0.31	$ (0.85)	$ (3.50)
Diluted net earnings (loss) per common share:
Earnings (loss) from continuing operations (in dollars per share)	$ 0.24	$ (0.84)	$ (3.49)
Loss from discontinued operations (in dollars per share)		$ (0.01)	$ (0.01)
Net earnings (loss) per share (in dollars per share)	$ 0.24	$ (0.85)	$ (3.50)
Weighted-average number of common shares outstanding:
Basic (in shares)	32,429	32,196	32,129
Diluted (in shares)	40,958	32,196	32,129

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
Foreign Currency
Percentage of depreciation (appreciation) in average Canadian currency rate relative to U.S. dollar		1.00%	(6.00%)
Gain (loss) on settlement of Canadian accounts payable as a result of fluctuation in the Canadian dollar	$ (0.7)	$ (1.7)	$ 1.4
Minimum
Foreign Currency
Percentage of depreciation (appreciation) in average Canadian currency rate relative to U.S. dollar	(1.00%)

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QUARTERLY RESULTS FROM CONTINUING OPERATIONS (UNAUDITED) (Details) (USD $)	3 Months Ended								12 Months Ended
	Jul. 31, 2013	Apr. 30, 2013	Jan. 31, 2013	Oct. 31, 2012	Jul. 31, 2012	Apr. 30, 2012	Jan. 31, 2012	Oct. 31, 2011	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
Unaudited quarterly results of continuing operations
Revenues	$ 417,089,000	$ 442,708,000	$ 670,752,000	$ 357,468,000	$ 406,963,000	$ 445,170,000	$ 663,762,000	$ 350,983,000	$ 1,888,016,000	$ 1,866,878,000	$ 1,742,563,000
Gross margin	221,582,000	232,847,000	339,651,000	190,335,000	209,885,000	228,193,000	335,512,000	187,674,000	984,414,000	961,265,000	880,095,000
(Loss) earnings from continuing operations	(7,984,000)	5,052,000	41,208,000	(28,265,000)	(19,665,000)	(4,440,000)	28,930,000	(31,720,000)	10,012,000	(26,896,000)	(112,042,000)
(Loss) earnings per basic share from continuing operations (in dollars per share)	$ (0.25)	$ 0.16	$ 1.27	$ (0.88)	$ (0.61)	$ (0.14)	$ 0.90	$ (0.99)	$ 0.31	$ (0.84)	$ (3.49)
(Loss) earnings per diluted share from continuing operations (in dollars per share)	$ (0.25)	$ 0.13	$ 1.02	$ (0.88)	$ (0.61)	$ (0.14)	$ 0.78	$ (0.99)	$ 0.24	$ (0.84)	$ (3.49)
De Beers settlement		300,000		1,900,000					2,191,000
Costs incurred related to the debt refinancing transactions					$ 5,000,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Jul. 31, 2013

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation.    References to the "Company," "we," "us," and "our" in this Form 10-K 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 July 31, 2013, we operated 1,064 specialty retail jewelry stores and 630 kiosks located mainly 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.

Cash and Cash Equivalents

Cash and Cash Equivalents.    Cash and cash equivalents include cash on hand, deposits in banks and short-term marketable securities at varying interest rates with original maturities of three months or less. Also included in cash equivalents are proceeds due from credit card transactions with settlement terms of less than five days. Under our credit card processing agreements, a portion of these proceeds are held back to serve as collateral for disputed charges. The credit card proceeds held back as of July 31, 2013 and 2012 were not material. The carrying amount of our cash equivalents approximates fair value due to the short-term maturity of those instruments.

Merchandise Inventories

Merchandise Inventories.    Merchandise inventories are stated at the lower of cost or market. Substantially all U.S. inventories represent finished goods which are valued using the last-in, first-out ("LIFO") retail inventory method. Merchandise inventory of our Canadian brands, Peoples Jewellers and Mappins Jewellers, is valued using the retail inventory method. Under the retail method, inventory is segregated into categories of merchandise with similar characteristics at its current average retail selling value. The determination of inventory cost and the resulting gross margins are calculated by applying an average cost-to-retail ratio to the retail value of inventory. At the end of fiscal year 2013, approximately 16 percent of our total inventory represented raw materials and finished goods in our distribution centers. The inventory related to our manufacturing program and distribution center is valued at the weighted-average cost of those items. The LIFO charge was $4.6 million, $22.4 million and $17.0 million for the years ended July 31, 2013, 2012 and 2011, respectively. The cumulative LIFO provision reflected in the accompanying consolidated balance sheets was $63.0 million and $58.3 million at July 31, 2013 and 2012, respectively. Domestic inventories, excluding the cumulative LIFO provision, were $690.5 million and $664.1 million at July 31, 2013 and 2012, respectively. Our Canadian inventory totaled $140.0 million and $136.0 million at July 31, 2013 and 2012, respectively.

        Consignment inventory and the related contingent obligations are not reflected in our consolidated financial statements. Consignment inventory has historically consisted of test programs, merchandise at higher price points, or merchandise that otherwise does not warrant the risk of outright ownership. Consignment inventory can be returned to the vendor at any time. At the time consigned inventory is sold, we record the purchase liability in accounts payable and the related cost of merchandise in cost of sales. We had $149.1 million and $118.4 million of consignment inventory on hand at July 31, 2013 and 2012, respectively.

        We are required to determine the LIFO cost on an interim basis by estimating annual inflation trends, annual purchases and ending inventory levels for the fiscal year. Actual annual inflation rates and inventory balances as of the end of any fiscal year may differ from interim estimates. We apply internally developed indices that we believe accurately and consistently measure inflation or deflation in the components of our merchandise (i.e., the proper weighting of diamonds, gold and other metals and precious stones) and our overall merchandise mix. We believe our internally developed indices more accurately reflect inflation or deflation in our own prices than the U.S. Bureau of Labor Statistics producer price indices or other published indices.

        We also write-down the carrying value of our inventory for discontinued, slow-moving and damaged inventory. This write-down is equal to the difference between the cost of inventory and its estimated market value based upon assumptions of targeted inventory turn rates, future demand, management strategy and market conditions. If actual market conditions are less favorable than those projected by management or management strategy changes, additional inventory write-downs may be required and, in the case of a major change in strategy or downturn in market conditions, such write-downs could be significant.

        Shrinkage is estimated for the period from the last inventory date to the end of the fiscal year on a store-by-store basis. Such estimates are based on experience and the shrinkage results from the last physical inventory. Physical inventories are taken at least once annually for all store locations and the distribution centers. The shrinkage rate from the most recent physical inventory, in combination with historical experience, could impact our shrinkage reserve.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets.    Long-lived assets are reviewed for impairment by comparing the carrying value of the assets with their estimated undiscounted future cash flows. If the evaluation indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow method, using a discount rate that is commensurate with the risk inherent in our current business model. Assumptions are made with respect to cash flows expected to be generated by the related assets based upon the most recent projections. Any changes in key assumptions, particularly store performance or market conditions, could result in an unanticipated impairment charge. For instance, in the event of a major market downturn or adverse developments within a particular market or portion of our business, individual stores may become unprofitable, which could result in a write-down of the carrying value of the assets in those stores.

Goodwill

Goodwill.    In accordance with Accounting Standards Codification ("ASC") 350, Intangibles–Goodwill and Other, we test goodwill for impairment annually, at the end of our second quarter, or more frequently if events occur which indicate a potential reduction in the fair value of a reporting unit's net assets below its carrying value. We calculate estimated fair value using the present value of future cash flows expected to be generated using a weighted-average cost of capital, terminal values and updated financial projections. If our actual results are not consistent with estimates and assumptions used to calculate fair value, we may be required to recognize a goodwill impairment. See Note 5 for additional disclosures related to goodwill.

Revenue Recognition

Revenue Recognition.    We recognize revenue in accordance with ASC 605, Revenue Recognition. Revenue related to merchandise sales, which is approximately 90 percent of total revenues, is recognized at the time of sale, reduced by a provision for sales returns. The provision for sales returns is based on historical rates of return. Repair revenues are recognized when the service is complete and the merchandise is delivered to the guests.

        Premium revenues from our insurance businesses relate to credit insurance policies sold to guests who purchase our merchandise under the customer credit programs. Insurance premium revenues from credit insurance subsidiaries were $10.9 million, $10.5 million and $10.0 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. These insurance premiums are recognized over the coverage period and included in revenues in the accompanying consolidated statements of operations.

        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. ASC 605-20, Revenue Recognition–Services ("ASC 605-20"), requires recognition of warranty revenue on a straight-line basis until sufficient cost history exists. Once sufficient cost history is obtained, revenue is required to be recognized in proportion to when costs are expected to be incurred. Prior to fiscal year 2012, the Company recognized revenue from lifetime warranties on a straight-line basis over a five-year period because sufficient evidence of the pattern of costs incurred was not available. During the first quarter of fiscal year 2012, we began recognizing revenue related to lifetime warranty sales in proportion to when the expected costs will be incurred, which we estimate will 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. The deferred revenue balance as of July 31, 2011 related to lifetime warranties is being recognized prospectively, in proportion to the remaining estimated warranty costs. The change in estimate related to the pattern of revenue recognition and the life of the warranties was the result of accumulating additional historical evidence over the five-year period that we have been selling the lifetime warranties.

        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.

Gross Margin

Gross Margin.    Gross margin represents net sales less cost of sales. Cost of sales includes cost related to merchandise sold, receiving and distribution, guest repairs and repairs associated with warranties.

Selling, General and Administrative

Selling, General and Administrative.    Included in selling, general and administrative ("SG&A") are store operating, advertising, merchandising, costs of insurance operations and general corporate overhead expenses.

        On July 9, 2013, we entered into a Private Label Credit Card Program Agreement (the "ADS Agreement") with an affiliate of Alliance Data Systems Corporation ("ADS") to provide financing to our U.S. guests to purchase merchandise through private label credit cards beginning no later than October 1, 2015. The ADS Agreement will replace our current agreement with Citibank which expires on October 1, 2015. In July 2013, we received a $38.0 million commencement payment upon signing the ADS Agreement. The commencement payment will be amortized over the initial term of the ADS Agreement as a reduction of merchant fees beginning on the commencement date of the agreement.

Operating Leases

Operating Leases.    Rent expense is recognized on a straight-line basis, including consideration of rent holidays, tenant improvement allowances received from the landlords and applicable rent escalations over the term of the lease. The commencement date of the rent expense is the earlier of the date when we become legally obligated for the rent payments or the date when we take possession of the building for construction purposes.

Capital Leases

Capital Leases.    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.

Depreciation and Amortization

Depreciation and Amortization.    Leasehold improvements are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets or remaining lease life, whichever is shorter, which generally range from 5 to 10 years. Fixtures and equipment are amortized using the straight-line method over the estimated useful lives of the assets, which range from 3 to 15 years. Original cost and related accumulated depreciation or amortization is removed from the accounts in the year assets are retired. Gains or losses on dispositions of property and equipment are recorded in the year of disposal and are included in SG&A in the accompanying consolidated statements of operations. Repairs and maintenance costs are expensed as incurred.

Stock-Based Compensation

Stock-Based Compensation.    Stock-based compensation is accounted for under ASC 718, Compensation–Stock Compensation, which requires the use of the fair value method of accounting for all stock-based compensation, including stock options. Share-based awards are recognized as compensation expense over the requisite service period.

Stock Repurchase Program

Stock Repurchase Program.    During fiscal year 2008, the Board of Directors authorized share repurchases of $350 million. As of July 31, 2013, $23.3 million was remaining under our stock repurchase program.

Preferred Stock

Preferred Stock.    At July 31, 2013 and 2012, 5.0 million shares of preferred stock, par value of $0.01, were authorized. None were issued or outstanding.

Self-Insurance

Self-Insurance.    We are self-insured for certain losses related to property insurance, general liability, workers' compensation and medical claims. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet dates. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity or frequency of claims, medical cost inflation, or fluctuations in premiums differ from our estimates, our results of operations could be impacted.

Advertising Expenses

Advertising Expenses.    Advertising is generally expensed when the advertisement is utilized and is a component of SG&A. Production costs are expensed upon the first occurrence of the advertisement. Advertising expenses were $83.6 million, $94.5 million and $76.5 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively, net of amounts contributed by vendors. Prepaid advertising at July 31, 2013 and 2012 totaled $4.9 million and $0.7 million, respectively, and is included in other current assets in the accompanying consolidated balance sheets.

Vendor Allowances

Vendor Allowances.    We receive cash or allowances from merchandise vendors primarily in connection with cooperative advertising programs and reimbursements for markdowns taken to sell the vendor's products. We have agreements in place with each vendor setting forth the specific conditions for each allowance or payment. The majority of these agreements are entered into or renewed annually at the beginning of each fiscal year. Qualifying vendor reimbursements of costs incurred to specifically advertise vendors' products are recorded as a reduction of advertising expense. All other allowances or cash payments received are recorded as a reduction to the cost of merchandise. Vendor allowances included in advertising expense totaled $1.9 million, $3.1 million and $1.0 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. Vendor allowances included in cost of sales totaled $10.1 million, $5.2 million and $3.7 million for the years ended July 31, 2013, 2012 and 2011, respectively.

Income Taxes

Income Taxes.    Income taxes are accounted for under the asset and liability method prescribed by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the tax rate changes are enacted. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not such assets will be realized.

        We file income tax returns in the U.S. federal jurisdiction, in various states and in certain foreign jurisdictions. We are subject to U.S. federal examinations by tax authorities for fiscal years ending on or after July 31, 2009. We are subject to audit by taxing authorities of most states and certain foreign jurisdictions and are subject to examination by these taxing jurisdictions for fiscal years ending on or after July 31, 2008.

Sales Tax

Sales Tax.    We present revenues net of taxes collected and record the taxes as a liability in the consolidated balance sheets until the taxes are remitted to the appropriate taxing authority.

Foreign Currency

Foreign Currency.    Translation adjustments result from translating foreign subsidiaries' financial statements into U.S. dollars. Balance sheet accounts are translated at exchange rates in effect at the balance sheet date. Income statement accounts are translated at average exchange rates during the period. Resulting translation adjustments are included in the accompanying consolidated statements of comprehensive income (loss).

        During the fiscal year ended July 31, 2013 and 2011, the average Canadian currency rate appreciated by less than one percent and approximately six percent, respectively, relative to the U.S. dollar. During the fiscal year ended July 31, 2012, the average Canadian currency rate depreciated by approximately one percent relative to the U.S. dollar. The changes in the Canadian currency rates did not have a material impact on the Company's net earnings (loss) during the fiscal years ended July 31, 2013, 2012 and 2011. As a result of fluctuations in the Canadian dollar, we recorded losses totaling $0.7 million and $1.7 million and a gain totaling $1.4 million during the fiscal years ended July 31, 2013, 2012 and 2011, respectively, primarily associated with the settlement of Canadian accounts payable.

Discontinued Operations

Discontinued Operations.    In connection with the sale of the Bailey, Banks & Biddle brand in November 2007 and subsequent bankruptcy filed by the buyer, Finlay Fine Jewelry Corporation, on August 5, 2009, we remain contingently liable for certain leases for the remainder of the respective lease terms. As of July 31, 2013, the lease reserve related to the one remaining lease totaled $0.6 million.

Concentrations of Business and Credit Risk

Concentrations of Business and Credit Risk.    During both fiscal years 2013 and 2012, we purchased approximately 22 percent of our finished merchandise from five vendors (excluding finished merchandise produced by our internal manufacturing organization) with no single vendor exceeding ten percent. In fiscal years 2013 and 2012, approximately 13 percent and 16 percent, respectively, of our merchandise requirements were assembled by our internal manufacturing organization. If purchases from these top vendors were disrupted, particularly at certain critical times during the year, our sales could be adversely affected in the short term until alternative supply arrangements could be established. As of July 31, 2013 and 2012, we had no significant concentrations of credit risk.

Use of Estimates

Use of Estimates.    Our accounting and financial reporting policies are in conformity with U.S. generally accepted accounting principles. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. For example, unexpected changes in market conditions or a downturn in the economy could adversely affect actual results. Estimates are used in accounting for, among other things, inventory valuation, goodwill and long-lived asset valuation, LIFO inventory retail method, legal liability, credit insurance liability, product warranty, depreciation, workers' compensation, taxes and contingencies. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Reclassification

Reclassification.    Certain prior year amounts have been reclassified in the accompanying consolidated balance sheets to conform to our fiscal year 2013 presentation.

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ACCUMULATED OTHER COMPREHENSIVE INCOME

12 Months Ended

Jul. 31, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME

16. ACCUMULATED OTHER COMPREHENSIVE INCOME

        The following table includes detail regarding changes in the composition of accumulated other comprehensive income (in thousands):

	Cumulative Translation Adjustment			Unrealized Gain on Securities			Total Accumulated Other Comprehensive Income
Balance at July 31, 2010	$	46,300		$	1,406		$	47,706
Cumulative translation adjustment		14,190			—			14,190
Unrealized gain on securities		—			924			924
Reclassification to earnings		—			(169	)		(169	)
Balance at July 31, 2011		60,490			2,161			62,651
Cumulative translation adjustment		(9,668	)		—			(9,668	)
Unrealized gain on securities		—			628			628
Reclassification to earnings		—			(242	)		(242	)
Balance at July 31, 2012		50,822			2,547			53,369
Cumulative translation adjustment		(5,685	)		—			(5,685	)
Unrealized gain on securities		—			34			34
Reclassification to earnings		—			(703	)		(703	)
Balance at July 31, 2013	$	45,137		$	1,878		$	47,015

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

12 Months Ended

Jul. 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):

	Cumulative Translation Adjustment			Unrealized Gain on Securities			Total Accumulated Other Comprehensive Income
Balance at July 31, 2010	$	46,300		$	1,406		$	47,706
Cumulative translation adjustment		14,190			—			14,190
Unrealized gain on securities		—			924			924
Reclassification to earnings		—			(169	)		(169	)
Balance at July 31, 2011		60,490			2,161			62,651
Cumulative translation adjustment		(9,668	)		—			(9,668	)
Unrealized gain on securities		—			628			628
Reclassification to earnings		—			(242	)		(242	)
Balance at July 31, 2012		50,822			2,547			53,369
Cumulative translation adjustment		(5,685	)		—			(5,685	)
Unrealized gain on securities		—			34			34
Reclassification to earnings		—			(703	)		(703	)
Balance at July 31, 2013	$	45,137		$	1,878		$	47,015

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FAIR VALUE MEASUREMENTS (Details) (USD $)	12 Months Ended							6 Months Ended		12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011	Jul. 31, 2013 Store-level property and equipment	Jul. 31, 2012 Store-level property and equipment	Jul. 31, 2013 Cost Store-level property and equipment	Jul. 31, 2012 Cost Store-level property and equipment	Jan. 31, 2013 Level 3 Minimum	Jan. 31, 2013 Level 3 Maximum	Jul. 31, 2013 Level 3 Store-level property and equipment Minimum	Jul. 31, 2013 Level 3 Store-level property and equipment Maximum	Jul. 31, 2013 Recurring basis Level 1	Jul. 31, 2012 Recurring basis Level 1	Jul. 31, 2013 Recurring basis Level 1 U.S. Treasury securities	Jul. 31, 2012 Recurring basis Level 1 U.S. Treasury securities	Jul. 31, 2013 Recurring basis Level 1 Corporate equity securities	Jul. 31, 2012 Recurring basis Level 1 Corporate equity securities	Jul. 31, 2013 Recurring basis Level 2	Jul. 31, 2012 Recurring basis Level 2	Jul. 31, 2013 Recurring basis Level 2 U.S. government agency securities	Jul. 31, 2012 Recurring basis Level 2 U.S. government agency securities	Jul. 31, 2013 Recurring basis Level 2 Corporate bonds and notes	Jul. 31, 2012 Recurring basis Level 2 Corporate bonds and notes	Jul. 31, 2013 Nonrecurring basis Level 3 Store-level property and equipment	Jul. 31, 2012 Nonrecurring basis Level 3 Store-level property and equipment
FAIR VALUE MEASUREMENTS
Investments measured at fair value	$ 20,620,000	$ 29,336,000										$ 17,105,000	$ 25,102,000	$ 14,436,000	$ 21,109,000	$ 2,669,000	$ 3,993,000	$ 3,515,000	$ 4,234,000	$ 2,687,000	$ 2,920,000	$ 828,000	$ 1,314,000
Weighted average cost of capital (as a percent)								15.30%	17.50%	15.30%	17.50%
Store-level property and equipment						1,200,000	2,200,000																	100,000	400,000
Impairment charge	$ 1,119,000	$ 1,751,000	$ 6,762,000	$ 1,100,000	$ 1,800,000

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OTHER (GAINS) CHARGES (Details) (USD $)	3 Months Ended		12 Months Ended
	Apr. 30, 2013	Oct. 31, 2012	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
OTHER (GAINS) CHARGES
Store impairments			$ 1,119,000	$ 1,751,000	$ 6,762,000
Store closure adjustments			324,000	222,000	285,000
De Beers settlement	(300,000)	(1,900,000)	(2,191,000)
Other (gains) charges			(748,000)	1,973,000	7,047,000
Percentage one, used in impairment sensitivity analysis to disclose financial impact of adverse change in earnings			20.00%
Amount of additional impairment if operating earnings decline by 20%			500,000
Lease reserve balance associated with closed stores, primarily in fine jewelry			0	0
Amount received as a result of a settlement of lawsuit			$ 2,200,000

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OTHER (GAINS) CHARGES (Tables)

12 Months Ended

Jul. 31, 2013

OTHER (GAINS) CHARGES

Schedule of other (gains) charges

Other (gains) charges consist of the following (in thousands):

	Year Ended July 31,
	2013			2012		2011
Store impairments	$	1,119		$	1,751	$	6,762
Store closure adjustments		324			222		285
De Beers settlement		(2,191	)		—		—
	$	(748	)	$	1,973	$	7,047

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INVESTMENTS (Tables)

12 Months Ended

Jul. 31, 2013

INVESTMENTS

Schedule of investments

Our investments consist of the following (in thousands):

	Year Ended July 31, 2013				Year Ended July 31, 2012
	Cost		Fair Value		Cost		Fair Value
U.S. Treasury securities	$	13,501	$	14,436	$	19,423	$	21,109
U.S. government agency securities		2,543		2,687		2,673		2,920
Corporate bonds and notes		756		828		1,192		1,314
Corporate equity securities		1,942		2,669		3,501		3,993
	$	18,742	$	20,620	$	26,789	$	29,336

Schedule of debt securities outstanding maturities

Debt securities outstanding as of July 31, 2013 mature as follows (in thousands):

	Year Ended July 31,
	Cost		Fair Value
Less than one year	$	3,610	$	3,682
Year two through year five		9,178		10,017
Year six through year ten		3,944		4,174
After ten years		68		78
	$	16,800	$	17,951

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables)

12 Months Ended

Jul. 31, 2013

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Schedule of accounts payable and accrued liabilities

Accounts payable and accrued liabilities consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Accounts payable	$	135,650	$	133,071
Accrued payroll		20,379		12,734
Accrued taxes		16,716		15,166
Accrued and straight-line rent		11,955		11,904
Other		35,858		32,207
	$	220,558	$	205,082

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OTHER ASSETS

12 Months Ended

Jul. 31, 2013

OTHER ASSETS

OTHER ASSETS

6. OTHER ASSETS

        Other assets consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Debt issuance costs	$	11,488	$	14,468
Investments in debt and equity securities		20,620		29,336
Other		3,570		3,986
	$	35,678	$	47,790

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LONG-TERM DEBT (Details 2) (USD $) In Millions, except Per Share data, unless otherwise specified	1 Months Ended	3 Months Ended
	May 31, 2010	Jul. 31, 2010	Sep. 24, 2010	May 10, 2010 item
Warrant
Warrant and Registration Rights Agreement
Warrants conversion ratio	1
Exercise price of warrants (in dollars per share)				$ 2.00
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
Fair value of the warrants				$ 21.3
Mark-to-market gain		8.3
Warrants reclassified to stockholders' investment and included in additional paid-in capital		13.0
Unamortized discount associated with the Warrants charged to interest expense			$ 20.3
A-Warrants | Senior secured term loan prior to September 2010 amendment
Warrant and Registration Rights Agreement
Number of warrants issued	6.4
B-Warrants | Senior secured term loan prior to September 2010 amendment
Warrant and Registration Rights Agreement
Number of warrants issued	4.7

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FAIR VALUE MEASUREMENTS (Tables)

12 Months Ended

Jul. 31, 2013

FAIR VALUE MEASUREMENTS

Schedule of assets that are measured at fair value on a recurring basis

The following tables include our assets that are measured at fair value on a recurring basis (in thousands):

	Fair Value as of July 31, 2013
	Level 1		Level 2		Level 3
U.S. Treasury securities	$	14,436	$	—	$	—
U.S. government agency securities		—		2,687		—
Corporate bonds and notes		—		828		—
Corporate equity securities		2,669		—		—
	$	17,105	$	3,515	$	—

	Fair Value as of July 31, 2012
	Level 1		Level 2		Level 3
U.S. Treasury securities	$	21,109	$	—	$	—
U.S. government agency securities		—		2,920		—
Corporate bonds and notes		—		1,314		—
Corporate equity securities		3,993		—		—
	$	25,102	$	4,234	$	—

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STOCK-BASED COMPENSATION (Tables)

12 Months Ended

Jul. 31, 2013

STOCK-BASED COMPENSATION

Schedule of stock option transactions

	Number of Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, beginning of year		3,624,907		$	10.31
Granted		10,500			5.15
Exercised		(65,325	)		2.30
Forfeited		(106,850	)		3.02
Expired		(255,949	)		23.49
Outstanding, end of year		3,207,283		$	9.65		6.07	$	13,801,439
Options exercisable, end of year		2,099,758		$	13.09		5.21	$	7,335,791

Schedule of weighted-average assumptions used in the option pricing model for stock option grants

	2013			2012			2011
Expected volatility		107.0	%		101.4	%		93.5	%
Risk-free interest rate		0.5	%		0.7	%		1.0	%
Expected lives in years		4.0			4.0			4.0
Dividend yield		0.0	%		0.0	%		0.0	%

Schedule of restricted share award

Restricted share award transactions during fiscal year 2013 are summarized as follows:

	Number of Restricted Share Awards			Weighted- Average Fair Value Per Award
Restricted share awards, beginning of year		1,473,497		$	3.29
Granted		238,483			5.88
Vested		(446,982	)		3.49
Forfeited		(33,375	)		3.19
Restricted share awards, end of year		1,231,623		$	3.73

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LONG-TERM DEBT

12 Months Ended

Jul. 31, 2013

LONG-TERM DEBT

LONG-TERM DEBT

9. LONG-TERM DEBT

        Long-term debt consists of the following (in thousands):

	Year Ended July 31,
	2013		2012
Revolving credit agreement	$	327,200	$	369,800
Senior secured term loan		80,000		80,000
Capital lease obligations		2,850		3,108
	$	410,050	$	452,908

• 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 range from 69 to 72 percent for the period of August through September 2013, 81 to 83 percent for the period of October through December 2013 and 68 to 73 percent for the period of January through July 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.

        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 will replace the one-month LIBOR with the fixed interest rates shown in the table below and will be settled monthly. The swaps qualify as cash flow hedges and, to the extent effective, changes in their fair values will be recorded in accumulated other comprehensive income in the consolidated balance sheet.

        Interest rate swaps executed in September 2013 are as follows:

Period	Notional Amount (in thousands)		Fixed Interest Rate
October 2013 - July 2014	$	215,000		0.29	%
August 2014 - July 2016	$	215,000		1.19	%

        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 $242 million as of July 31, 2013, which exceeded the excess availability requirement by $185 million. The fixed charge coverage ratio was 2.72 as of July 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 July 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 paid under the revolving credit agreement during fiscal years 2013, 2012 and 2011 was $10.6 million, $14.3 million and $10.4 million, respectively.

• 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 July 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 July 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. We also incurred a $3.0 million prepayment premium related to the $60.5 million prepayment on the prior term loan. The $3.0 million prepayment premium was recorded in interest expense during the fourth quarter of fiscal year 2012.

        In fiscal year 2011, we recorded a charge to interest expense totaling $45.8 million as a result of an amendment to the prior term loan on September 24, 2010. In accordance with ASC 470-50, Debt–Modifications and Extinguishments, the amendment was considered a significant modification which required us to account for the prior term loan and related unamortized costs as an extinguishment and record the loan at fair value. The charge consisted of $20.3 million related to the unamortized discount associated with the warrants (see below) issued in connection with the prior term loan, a $12.5 million amendment fee, $10.3 million related to unamortized debt issue costs and $2.7 million related to a prepayment premium and other costs.

        Interest paid under the term loan during fiscal years 2013, 2012 and 2011 was $8.9 million, $20.8 million and $21.7 million, respectively.

• 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. Under the terms of the Warrant Agreement, we issued 6.4 million A-Warrants and 4.7 million B-Warrants (collectively, 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 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 A-Warrants were exercisable immediately; however, the B-Warrants were not exercisable until the shares of common stock to be issued upon exercise of the B-Warrants were approved by our stockholders, which occurred on July 23, 2010. 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 for resale all or part of the common stock issuable under the Warrant Agreement.

        The fair value of the Warrants totaled $21.3 million as of the date of issuance and was recorded as a long-term liability, with a corresponding discount to the carrying value of the prior term loan. On July 23, 2010, the stockholders approved the shares of common stock to be issued upon exercise of the B-Warrants. The long-term liability associated with the Warrants was marked-to-market as of the date of the stockholder approval resulting in an $8.3 million gain during the fourth quarter of fiscal year 2010. The remaining amount of $13.0 million was reclassified to stockholders' investment and is included in additional paid-in capital in the accompanying consolidated balance sheet. The remaining unamortized discount totaling $20.3 million associated with the Warrants was charged to interest expense as a result of an amendment to the prior term loan on September 24, 2010.

• 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 July 31, 2013 and 2012 totaled $2.9 million and $3.1 million, respectively.

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RETIREMENT PLANS (Details)	12 Months Ended
	Jul. 31, 2013
Plans
MULTIEMPLOYER PENSION PLAN
Service period required to be completed to be eligible to participate in plan	1 year
Plans | Minimum
MULTIEMPLOYER PENSION PLAN
Number of hours required for an employee to be eligible to participate in plan	1000 hours
Required age for an employee to be eligible to participate in plan (in years)	21
Annual contribution percentage per employee	1.00%
Plans | Maximum
MULTIEMPLOYER PENSION PLAN
Annual contribution percentage per employee	60.00%
Annual contribution percentage per highly-compensated employee	30.00%
U.S. Plan
MULTIEMPLOYER PENSION PLAN
Contribution percentage of employees who have not otherwise elected	5.00%
PR Plan
MULTIEMPLOYER PENSION PLAN
Contribution percentage of employees who have not otherwise elected	2.00%

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GOODWILL

12 Months Ended

Jul. 31, 2013

GOODWILL

GOODWILL.

5. GOODWILL

        In accordance with ASC 350, Intangibles–Goodwill and Other, we test goodwill for impairment annually, at the end of our second quarter, or more frequently if events occur which indicate a potential reduction in the fair value of a reporting unit's net assets below its carrying value. We calculate estimated fair value using the present value of future cash flows expected to be generated using a weighted average cost of capital, terminal values and updated financial projections. At the end of the second quarter of fiscal year 2013, we completed our annual impairment testing of goodwill. Based on the test results, we concluded that no impairment was necessary for the $79.0 million of goodwill related to the Peoples Jewellers acquisition and the $19.4 million of goodwill related to the Piercing Pagoda acquisition. As of the date of the test, the fair value of the Peoples Jewellers and Piercing Pagoda reporting units would have to decline by more than 20 percent and 59 percent, respectively, to be considered for potential impairment. We calculated the estimated fair value of our reporting units using Level 3 inputs, including: (1) cash flow projections for five years assuming positive comparable store sales growth; (2) terminal year growth rates of two percent based on estimates of long-term inflation expectations; and (3) discount rates of 15.3 percent to 17.5 percent, respectively, based on a risk-adjusted weighted average cost of capital that reflects current market conditions. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a material change could occur. If our actual results are not consistent with estimates and assumptions used to calculate fair value, we may be required to recognize goodwill impairments.

        The changes in the carrying amount of goodwill are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Goodwill, beginning of period	$	100,544		$	104,620
Foreign currency adjustments		(2,172	)		(4,076	)
Goodwill, end of period	$	98,372		$	100,544

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (Equity) (USD $) In Thousands, unless otherwise specified	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income	Accumulated Earnings	Treasury Stock
Balance at Jul. 31, 2010	$ 308,020	$ 488	$ 160,645	$ 47,706	$ 564,744	$ (465,563)
Balance (in shares) at Jul. 31, 2010		32,107
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)	(97,361)			14,945	(112,306)
Net settlement of share-based awards	18		(1,220)			1,238
Net settlement of share-based awards (in shares)		52
Stock-based compensation	2,150		2,150
Balance at Jul. 31, 2011	212,827	488	161,575	62,651	452,438	(464,325)
Balance (in shares) at Jul. 31, 2011		32,159
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)	(36,592)			(9,282)	(27,310)
Net settlement of share-based awards	(27)		(1,592)			1,565
Net settlement of share-based awards (in shares)		61
Stock-based compensation	2,728		2,728
Balance at Jul. 31, 2012	178,936	488	162,711	53,369	425,128	(462,760)
Balance (in shares) at Jul. 31, 2012	32,220	32,220
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)	3,658			(6,354)	10,012
Net settlement of share-based awards	(550)		(10,371)			9,821
Net settlement of share-based awards (in shares)		419
Stock-based compensation	3,285		3,285
Balance at Jul. 31, 2013	$ 185,329	$ 488	$ 155,625	$ 47,015	$ 435,140	$ (452,939)
Balance (in shares) at Jul. 31, 2013	32,639	32,639

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 5) (Bailey Banks & Biddle brand, Lease obligations, USD $) In Millions, unless otherwise specified	Jul. 31, 2013 item
Bailey Banks & Biddle brand | Lease obligations
Discontinued operations
Number of remaining leases	1
Lease reserve related to the one remaining lease	$ 0.6

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QUARTERLY RESULTS FROM CONTINUING OPERATIONS (UNAUDITED) (Tables)

12 Months Ended

Jul. 31, 2013

QUARTERLY RESULTS FROM CONTINUING OPERATIONS (UNAUDITED)

Schedule of unaudited quarterly results from continuing operations

Unaudited quarterly results from continuing operations for the fiscal years ended July 31, 2013 and 2012 were as follows (in thousands, except per share data):

	Fiscal Year 2013 For the Three Months Ended
	July 31, 2013			April 30, 2013		January 31, 2013		October 31, 2012
Revenues	$	417,089		$	442,708	$	670,752	$	357,468
Gross margin		221,582			232,847		339,651		190,335
(Loss) earnings from continuing operations(a)		(7,984	)		5,052		41,208		(28,265	)
(Loss) earnings per basic share from continuing operations		(0.25	)		0.16		1.27		(0.88	)
(Loss) earnings per diluted share from continuing operations		(0.25	)		0.13		1.02		(0.88	)

	Fiscal Year 2012 For the Three Months Ended
	July 31, 2012			April 30, 2012			January 31, 2012		October 31, 2011
Revenues	$	406,963		$	445,170		$	663,762	$	350,983
Gross margin		209,885			228,193			335,512		187,674
(Loss) earnings from continuing operations(b)		(19,665	)		(4,440	)		28,930		(31,720	)
(Loss) earnings per basic share from continuing operations		(0.61	)		(0.14	)		0.90		(0.99	)
(Loss) earnings per diluted share from continuing operations		(0.61	)		(0.14	)		0.78		(0.99	)

(a)

The earnings (loss) from continuing operations for the first and third quarters include gains totaling $1.9 million and $0.3 million, respectively, related to the De Beers settlement.

(b)

The loss from continuing operations for the fourth quarter includes costs incurred related to the debt refinancing transactions totaling $5.0 million.

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GOODWILL (Tables)

12 Months Ended

Jul. 31, 2013

GOODWILL

Schedule of changes in the carrying amount of goodwill

The changes in the carrying amount of goodwill are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Goodwill, beginning of period	$	100,544		$	104,620
Foreign currency adjustments		(2,172	)		(4,076	)
Goodwill, end of period	$	98,372		$	100,544

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LEASES (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
Rent Expense
Rent expense	$ 193,967	$ 193,891	$ 195,399
Capital Leases
2014	1,184
2015	1,184
2016	590
2017	46
Capital lease obligation before imputed interest	3,004
Less imputed interest	(154)
Capital lease obligation	2,850
Operating Leases
2014	173,782
2015	141,188
2016	112,318
2017	87,366
2018	60,340
Thereafter	140,806
Total	715,800
Retail space
Rent Expense
Minimum rentals	183,266	184,239	188,766
Rentals based on sales	6,629	5,721	2,796
Rent expense	189,895	189,960	191,562
Retail space | Minimum
Operating Leases
Operating Lease Term	5 years
Retail space | Maximum
Operating Leases
Operating Lease Term	10 years
Kiosk | Minimum
Operating Leases
Operating Lease Term	3 years
Kiosk | Maximum
Operating Leases
Operating Lease Term	5 years
Vehicles
Capital Leases
Capital Lease Term	4 years
Equipment and corporate headquarters
Rent Expense
Rent expense	$ 4,072	$ 3,931	$ 3,837

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INVESTMENTS (Details) (USD $)	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
INVESTMENTS
Available for Sale Securities Noncurrent, Fair Value	$ 20,620,000	$ 29,336,000
Net unrealized gain	1,900,000	2,500,000
Net realized gains	700,000	200,000	200,000
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	3,610,000
Year two through year five	9,178,000
Year six through year ten	3,944,000
After ten years	68,000
Total debt securities outstanding amortized, cost	16,800,000
Debt securities outstanding maturities measured at fair value
Less than one year	3,682,000
Year two through year five	10,017,000
Year six through year ten	4,174,000
After ten years	78,000
Total debt securities outstanding measured at fair value	17,951,000
Cost
INVESTMENTS
Available for Sale Securities Amortized, Cost	18,742,000	26,789,000
Fair Value
INVESTMENTS
Available for Sale Securities Noncurrent, Fair Value	20,620,000	29,336,000
U.S. Treasury securities | Cost
INVESTMENTS
Available for Sale Securities Amortized, Cost	13,501,000	19,423,000
U.S. Treasury securities | Fair Value
INVESTMENTS
Available for Sale Securities Noncurrent, Fair Value	14,436,000	21,109,000
U.S. government agency securities | Cost
INVESTMENTS
Available for Sale Securities Amortized, Cost	2,543,000	2,673,000
U.S. government agency securities | Fair Value
INVESTMENTS
Available for Sale Securities Noncurrent, Fair Value	2,687,000	2,920,000
Corporate bonds and notes | Cost
INVESTMENTS
Available for Sale Securities Amortized, Cost	756,000	1,192,000
Corporate bonds and notes | Fair Value
INVESTMENTS
Available for Sale Securities Noncurrent, Fair Value	828,000	1,314,000
Corporate equity securities | Cost
INVESTMENTS
Available for Sale Securities Amortized, Cost	1,942,000	3,501,000
Corporate equity securities | Fair Value
INVESTMENTS
Available for Sale Securities Noncurrent, Fair Value	$ 2,669,000	$ 3,993,000

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LEASES

12 Months Ended

Jul. 31, 2013

LEASES

LEASES

12. LEASES

        We rent substantially all of our retail space under operating leases that generally range from 5 to 10 years and may contain minimum rent escalations, while kiosk leases generally range from 3 to 5 years. We also lease certain vehicles under capital leases for a term of four years. We recognize the minimum rent payments on a straight-line basis over the term of the lease, including the construction period. Contingent rentals paid to lessors of certain store facilities are determined principally on the basis of a percentage of sales in excess of levels contained in the respective leases. All existing real estate leases are operating leases. Rent expense from continuing operations is included in SG&A and is as follows (in thousands):

	Year Ended July 31,
	2013		2012		2011
Retail space:
Minimum rentals	$	183,266	$	184,239	$	188,766
Rentals based on sales		6,629		5,721		2,796
		189,895		189,960		191,562
Corporate headquarters		4,072		3,931		3,837
	$	193,967	$	193,891	$	195,399

        Future minimum lease payments as of July 31, 2013, for all non-cancelable leases were as follows (in thousands):

Fiscal Year Ended	Capital Leases			Operating Leases
2014	$	1,184		$	173,782
2015		1,184			141,188
2016		590			112,318
2017		46			87,366
2018		—			60,340
Thereafter		—			140,806
	$	3,004		$	715,800
Less imputed interest		(154	)
Capital lease obligation	$	2,850

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

12 Months Ended

Jul. 31, 2013

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

        Accounts payable and accrued liabilities consist of the following (in thousands):

	Year Ended July 31,
	2013		2012
Accounts payable	$	135,650	$	133,071
Accrued payroll		20,379		12,734
Accrued taxes		16,716		15,166
Accrued and straight-line rent		11,955		11,904
Other		35,858		32,207
	$	220,558	$	205,082

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STOCK-BASED COMPENSATION (Details) (USD $)	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2011
STOCK-BASED COMPENSATION
Number of shares of common stock authorized for issue	5,500,000
Number of shares available to be issued	1,000,000
Stock-based compensation expense	$ 3,300,000	$ 2,700,000	$ 2,200,000
Income tax benefit recognized related to stock-based compensation	1,200,000	1,000,000	100,000
Stock Options
STOCK-BASED COMPENSATION
Vesting period	4 years
Expiration term	10 years
Unrecognized compensation cost related to stock option awards	1,600,000
Period over which unrecognized compensation expense is expected to be recognized	1 year 10 months 24 days
Number of Options
Outstanding, beginning of year (in shares)	3,624,907
Granted (in shares)	10,500
Exercised (in shares)	(65,325)
Forfeited (in shares)	(106,850)
Expired (in shares)	(255,949)
Outstanding, end of year (in shares)	3,207,283	3,624,907
Options exercisable, end of year (in shares)	2,099,758
Weighted-Average Exercise Price
Outstanding, beginning of year (in dollars per share)	$ 10.31
Granted (in dollars per share)	$ 5.15
Exercised (in dollars per share)	$ 2.30
Forfeited (in dollars per share)	$ 3.02
Expired (in dollars per share)	$ 23.49
Outstanding, end of year (in dollars per share)	$ 9.65	$ 10.31
Options exercisable, end of year (in dollars per share)	$ 13.09
Weighted-Average Remaining Contractual Life
Outstanding, end of year	6 years 25 days
Options exercisable, end of year	5 years 2 months 16 days
Aggregate Intrinsic Value
Outstanding, end of year	13,801,439
Options exercisable, end of year	7,335,791
Stock options, additional disclosure
Total intrinsic value of stock options exercised	300,000
Weighted-average fair values of option grants (in dollars per share)	$ 3.70	$ 2.51	$ 1.38
Fair value of stock options that vested	1,600,000	1,600,000	2,000,000
Weighted-average assumptions
Expected volatility (as a percent)	107.00%	101.40%	93.50%
Risk-free interest rate (as a percent)	0.50%	0.70%	1.00%
Expected lives in years	4 years	4 years	4 years
Dividend yield (as a percent)	0.00%	0.00%	0.00%
Restricted Share Awards
STOCK-BASED COMPENSATION
Period over which unrecognized compensation expense is expected to be recognized	1 year 8 months 12 days
Restricted share awards, additional disclosure
Unrecognized compensation cost related to restricted stock awards	3,300,000
Fair value of restricted share awards	$ 3,000,000	$ 200,000	$ 100,000
Number of Restricted Share Awards
Restricted share awards, beginning of year	1,473,497
Granted (in shares)	238,483
Vested (in shares)	(446,982)
Forfeited (in shares)	(33,375)
Restricted share awards, end of year	1,231,623	1,473,497
Weighted-Average Fair Value Per Award
Restricted share awards, beginning of year (in dollars per share)	$ 3.29
Granted (in dollars per share)	$ 5.88
Vested (in dollars per share)	$ 3.49
Forfeited (in dollars per share)	$ 3.19
Restricted share awards, end of year (in dollars per share)	$ 3.73	$ 3.29
Restricted stock and restricted stock units
STOCK-BASED COMPENSATION
Vesting period			3 years
Restricted stock and restricted stock units | Awards Granted From Fiscal Year 2007 to 2011
Restricted share awards, additional disclosure
Vesting percentage on the second and third anniversary of the date of the grant	25.00%
Vesting percentage on the fourth anniversary of the date of the grant	50.00%
Performance-based stock
Number of Restricted Share Awards
Restricted share awards, end of year	297,500	297,500

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EARNINGS (LOSS) PER COMMON SHARE

12 Months Ended

Jul. 31, 2013

EARNINGS (LOSS) PER COMMON SHARE

EARNINGS (LOSS) PER COMMON SHARE

15. EARNINGS (LOSS) PER COMMON SHARE

        Basic earnings (loss) per common share is computed by dividing net earnings (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 using the treasury stock method.

        The following table presents a reconciliation of the diluted weighted average shares (in thousands):

	Year Ended July 31,
	2013		2012		2011
Basic weighted average shares		32,429		32,196		32,129
Effect of potential dilutive securities:
Warrants		7,189		—		—
Stock options and restricted share awards		1,340		—		—
Diluted weighted average shares		40,958		32,196		32,129

        The calculation of diluted weighted average shares excludes the impact of 1.2 million, 5.1 million and 3.0 million antidilutive stock options and restricted share awards for the years ended July 31, 2013, 2012 and 2011, respectively. The calculation of diluted weighted average shares also excludes the impact of 11.1 million antidilutive warrants for both the years ended July 31, 2012 and 2011.

        We incurred a net loss of $27.3 million and $112.3 million for the years ended July 31, 2012 and 2011, 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 those fiscal years.

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INCOME TAXES

12 Months Ended

Jul. 31, 2013

INCOME TAXES

INCOME TAXES

13. INCOME TAXES

        Currently, we file a consolidated U.S. federal income tax return. The effective income tax rate from continuing operations varies from the federal statutory rate of 35 percent as follows (in thousands):

	Year Ended July 31,
	2013			2012			2011
Federal income tax expense (benefit) at statutory rate	$	4,177		$	(8,936	)	$	(38,750	)
State income taxes, net of federal benefit		858			(2,767	)		(4,250	)
Tax on repatriation of foreign earnings		3,954			5,950			14,099
Foreign tax rate changes and differential(a)		577			225			(1,274	)
Change in valuation allowance		(6,977	)		2,285			44,406
Depreciation and amortization adjustment(b)		—			—			(8,512	)
Other		(665	)		4,608			(4,162	)
Income tax expense	$	1,924		$	1,365		$	1,557
Effective income tax rate		16.1	%		(5.3	)%		(1.4	)%

(a)

For the past three years, Canada has reduced both its federal statutory and provincial tax rates. In fiscal year 2012, Puerto Rico reduced its federal statutory tax rate. Foreign tax rate differential represents the difference between the statutory tax rate in the U.S. and the statutory tax rates in Canada and Puerto Rico.

(b)

The $8.5 million adjustment in fiscal year 2011 was fully offset with a valuation allowance, resulting in no impact to the consolidated statement of operations.

        The provision for income taxes from continuing operations consists of the following (in thousands):

	Year Ended July 31,
	2013			2012			2011
Current income tax expense (benefit):
Federal	$	232		$	349		$	(9,628	)
Foreign		1,131			664			5,003
State		(604	)		(1,206	)		910
Total current income tax expense (benefit)		759			(193	)		(3,715	)
Deferred income tax expense:
Federal		102			(166	)		5,114
Foreign		986			1,675			159
State		77			49			(1	)
Total deferred income tax expense		1,165			1,558			5,272
	$	1,924		$	1,365		$	1,557

        Deferred tax assets and liabilities are determined based on the estimated future tax effects of the difference between the financial statement and tax basis of asset and liability balances using statutory tax rates. Tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at July 31, 2013 and 2012, respectively, are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Assets:
Accrued liabilities	$	78,754		$	84,515
Inventory reserves		7,220			7,083
Deferred income		14,033			—
Net operating loss carryforward		100,407			120,277
Stock-based compensation		7,067			7,160
Investments in subsidiaries		3,177			1,752
Foreign tax credits		13,978			12,609
Property and equipment		9,355			9,326
Other		2,854			5,986
Total deferred tax assets		236,845			248,708
Valuation allowances		(92,149	)		(98,995	)
Total deferred tax assets, net	$	144,696		$	149,713
Liabilities:
Merchandise inventories, principally due to LIFO reserve	$	(129,273	)	$	(119,256	)
Undistributed earnings		—			(13,973	)
Goodwill		(13,869	)		(13,941	)
Other		(3,963	)		(3,853	)
Total deferred tax liabilities		(147,105	)		(151,023	)
Deferred tax liabilities, net	$	(2,409	)	$	(1,310	)

        Deferred tax assets and liabilities in the accompanying consolidated balance sheets are as follows (in thousands):

	Year Ended July 31,
	2013			2012
Other current assets	$	3,495		$	4,150
Deferred tax asset		107,110			96,929
Deferred tax liability		(107,016	)		(96,662	)
Other liabilities		(5,998	)		(5,727	)
Deferred tax liabilities, net	$	(2,409	)	$	(1,310	)

        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 July 31, 2013 and 2012, cumulative losses were incurred over the applicable three-year period.

        Our valuation allowances totaled $92.1 million and $99.0 million as of July 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.

        Deferred tax assets associated with foreign tax credits totaled $14.0 million and $12.6 million as of July 31, 2013 and 2012, respectively. The net operating loss carryforwards, including foreign tax credits, expire from fiscal year 2014 to fiscal year 2033. These carryforwards may be subject to limitations under Section 382 of the Internal Revenue Code if significant ownership changes occur in the future.

        In fiscal year 2011, we recorded income tax benefits totaling $4.6 million related to tax refunds associated with net operating loss carrybacks pursuant to the Worker, Homeownership and Business Assistance Act of 2009 (the "Business Assistance Act"). The Business Assistance Act was enacted in November 2009 and includes provisions that extend the time period in which net operating loss carrybacks can be utilized from two to five years, with certain limitations.

        Income tax refunds, net of taxes paid, during fiscal years 2013, 2012 and 2011 totaled $2.2 million, $0.8 million and $1.0 million, respectively.

• Uncertain Tax Positions

        We operate in a number of tax jurisdictions and are subject to examination of our income tax returns by tax authorities in those jurisdictions who may challenge any item on these returns. Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain. In accordance with ASC 740, Income Taxes, we recognize the benefits of uncertain tax positions in our financial statements only after determining that it is more likely than not that the uncertain tax positions will be sustained.

        The total amount of unrecognized tax benefits as of July 31, 2013 was $3.5 million, of which $2.5 million would favorably impact the effective tax rate if resolved in our favor. Over the next twelve months, management does not anticipate that the amount of unrecognized tax benefits will be materially reduced due to our tax position being sustained upon audit or as a result of the expiration of the statute of limitations for specific jurisdictions.

        A reconciliation of the fiscal year 2013 beginning and ending balance of unrecognized tax benefits is as follows (in thousands):

	Unrecognized Tax Benefits
Balance at July 31, 2012	$	3,631
Additions based on tax positions related to prior years		555
Settlements with tax authorities		(341	)
Expiration of statute of limitations		(331	)
Balance at July 31, 2013	$	3,514

        We recognize accrued interest and penalties related to unrecognized tax benefits in our income tax expense. We had $1.5 million, $1.9 million and $2.6 million of interest and penalties accrued at July 31, 2013, 2012 and 2011, respectively. There was no material interest expense in fiscal years 2013, 2012 and 2011.

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Document and Entity Information (USD $)	12 Months Ended
	Jul. 31, 2013	Sep. 23, 2013	Jan. 31, 2013
Document and Entity Information
Entity Registrant Name	ZALE CORP
Entity Central Index Key	0000109156
Document Type	10-K
Document Period End Date	Jul. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--07-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 157,946,032
Entity Common Stock, Shares Outstanding		32,764,729
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY

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STOCK-BASED COMPENSATION

12 Months Ended

Jul. 31, 2013

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

14. STOCK-BASED COMPENSATION

        We are authorized to provide grants of options to purchase our common stock, restricted stock, time-vested restricted stock units, performance-based restricted stock units and other awards under the 2011 Omnibus Incentive Plan, as amended ("2011 Incentive Plan"). The 2011 Incentive Plan replaced the Zale Corporation 2003 Stock Incentive Plan and the Non-Employee Director Equity Compensation Plan. We are authorized to issue up to 5.5 million shares of our common stock for stock options and restricted stock to employees and non-employee directors under the plans. As of July 31, 2013, we have 1.0 million shares available to be issued under the plans. Stock options and restricted share awards are issued from treasury stock. Stock-based compensation expense is included in SG&A in the consolidated statements of operations and totaled $3.3 million, $2.7 million and $2.2 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. The income tax benefit recognized in the consolidated statements of operations related to stock-based compensation totaled $1.2 million, $1.0 million and $0.1 million during fiscal years 2013, 2012 and 2011, respectively.

        Stock Options.    Stock options are granted at an exercise price equal to or greater than the market value of the shares of our common stock at the date of grant, generally vest ratably over a four-year period and generally expire ten years from the date of grant. Expense related to stock options is recognized using a graded-vesting schedule over the vesting period. As of July 31, 2013, there was $1.6 million of unrecognized compensation cost related to stock option awards that is expected to be recognized over a weighted-average period of 1.9 years.

        Stock option transactions during fiscal year 2013 are summarized as follows:

	Number of Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, beginning of year		3,624,907		$	10.31
Granted		10,500			5.15
Exercised		(65,325	)		2.30
Forfeited		(106,850	)		3.02
Expired		(255,949	)		23.49
Outstanding, end of year		3,207,283		$	9.65		6.07	$	13,801,439
Options exercisable, end of year		2,099,758		$	13.09		5.21	$	7,335,791

        For the year ended July 31, 2013, the total intrinsic value of stock options exercised was $0.3 million. The total intrinsic value of stock options exercised during fiscal years 2012 and 2011 was not material. The weighted-average fair values of option grants were $3.70, $2.51 and $1.38 during fiscal years 2013, 2012 and 2011, respectively. The fair value of stock options that vested during both fiscal years 2013 and 2012 totaled $1.6 million. The fair value of stock options that vested during fiscal year 2011 totaled $2.0 million.

        The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following table presents the weighted-average assumptions used in the option pricing model for stock option grants in fiscal years 2013, 2012 and 2011:

	2013			2012			2011
Expected volatility		107.0	%		101.4	%		93.5	%
Risk-free interest rate		0.5	%		0.7	%		1.0	%
Expected lives in years		4.0			4.0			4.0
Dividend yield		0.0	%		0.0	%		0.0	%

        Expected volatility and the expected life of the stock options are based on historical experience. The risk-free rate is based on a U.S. Treasury yield that has a life which approximates the expected life of the option.

        Restricted Share Awards.    Restricted share awards consist of restricted stock, restricted stock units and performance-based restricted stock units. Restricted stock and restricted stock units granted to employees through fiscal year 2007 generally vested on the third anniversary of the grant date and are subject to restrictions on sale or transfer. Restricted stock and restricted stock units granted to employees between fiscal year 2007 and fiscal year 2011 generally vest twenty-five percent on the second and third anniversary of the date of the grant and the remaining fifty percent vest on the fourth anniversary of the date of the grant, subject to restrictions on sale or transfer. Restricted stock and restricted stock units granted to employees after fiscal year 2011 vest ratably over a three-year vesting period. Restricted stock granted to non-employee directors vest on the first anniversary of the grant date or, if earlier, the date of the next annual stockholder meeting and are subject to restrictions on sale or transfer. The fair value of restricted stock and restricted stock units is based on our closing stock price on the date of grant. Performance-based restricted stock units entitle the holder to receive a specified number of shares of our common stock based on our achievement of performance targets established by the Compensation Committee. There were 297,500 performance-based restricted stock units outstanding as of July 31, 2013 and 2012. At the sole discretion of the Compensation Committee, the holder of a restricted stock unit or performance-based restricted stock unit may receive a cash payment in lieu of a payout of shares of common stock equal to the fair market value of the number of shares of common stock the holder otherwise would have received. The total fair value of restricted share awards that vested during fiscal years 2013, 2012 and 2011, was $3.0 million, $0.2 million and $0.1 million, respectively. As of July 31, 2013, there was $3.3 million of unrecognized compensation cost related to restricted stock awards that is expected to be recognized over a weighted-average period of 1.7 years.

        Restricted share award transactions during fiscal year 2013 are summarized as follows:

	Number of Restricted Share Awards			Weighted- Average Fair Value Per Award
Restricted share awards, beginning of year		1,473,497		$	3.29
Granted		238,483			5.88
Vested		(446,982	)		3.49
Forfeited		(33,375	)		3.19
Restricted share awards, end of year		1,231,623		$	3.73

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LONG-TERM DEBT (Details) (USD $)					12 Months Ended			1 Months Ended	12 Months Ended		12 Months Ended							1 Months Ended		12 Months Ended						1 Months Ended	12 Months Ended						12 Months Ended				1 Months Ended	3 Months Ended	12 Months Ended		3 Months Ended	12 Months Ended
	Jul. 31, 2013	Jul. 31, 2012	Jul. 31, 2013 Interest rate swaps October 2013 - July 2014 Cash flow hedges	Jul. 31, 2013 Interest rate swaps August 2014 - July 2016 Cash flow hedges	Jul. 31, 2013 Revolving credit agreement	Jul. 31, 2012 Revolving credit agreement	Jul. 31, 2011 Revolving credit agreement	Jul. 31, 2012 Amended Credit Agreement	Jul. 31, 2013 Amended Credit Agreement	Jul. 24, 2012 Amended Credit Agreement	Jul. 31, 2013 Amended Credit Agreement Minimum	Jul. 31, 2013 Amended Credit Agreement August through September 2013 Minimum	Jul. 31, 2013 Amended Credit Agreement August through September 2013 Maximum	Jul. 31, 2013 Amended Credit Agreement October through December 2013 Minimum	Jul. 31, 2013 Amended Credit Agreement October through December 2013 Maximum	Jul. 31, 2013 Amended Credit Agreement January through July 2014 Minimum	Jul. 31, 2013 Amended Credit Agreement January through July 2014 Maximum	Jul. 31, 2012 FILO Facility	Jul. 24, 2012 FILO Facility	Jul. 31, 2013 FILO Facility LIBOR	Jul. 31, 2013 FILO Facility Base rate	Jul. 31, 2013 FILO Facility Minimum LIBOR	Jul. 31, 2013 FILO Facility Minimum Base rate	Jul. 31, 2013 FILO Facility Maximum LIBOR	Jul. 31, 2013 FILO Facility Maximum Base rate	Jul. 31, 2012 Amended Credit Agreement (excluding the FILO Facility)	Jul. 31, 2013 Amended Credit Agreement (excluding the FILO Facility) LIBOR	Jul. 31, 2013 Amended Credit Agreement (excluding the FILO Facility) Base rate	Jul. 31, 2013 Amended Credit Agreement (excluding the FILO Facility) Minimum LIBOR	Jul. 31, 2013 Amended Credit Agreement (excluding the FILO Facility) Minimum Base rate	Jul. 31, 2013 Amended Credit Agreement (excluding the FILO Facility) Maximum LIBOR	Jul. 31, 2013 Amended Credit Agreement (excluding the FILO Facility) Maximum Base rate	Jul. 31, 2013 Revolving credit prior to amended and restated revolving credit agreement	Jul. 31, 2013 Senior Secured Term Loan	Jul. 31, 2012 Senior Secured Term Loan	Jul. 31, 2011 Senior Secured Term Loan	Jul. 31, 2012 Senior secured term loan amended July 24, 2012	Jul. 31, 2012 Senior secured term loan amended July 24, 2012	Jul. 31, 2013 Senior secured term loan amended July 24, 2012	Jul. 31, 2013 Senior secured term loan amended July 24, 2012 Minimum	Jul. 31, 2012 Senior secured term loan amended September 2010	Jul. 31, 2013 Senior secured term loan amended September 2010	Jul. 31, 2011 Senior secured term loan prior to September 2010 amendment	Jul. 31, 2011 Senior secured term loan prior to September 2010 amendment Warrant	Jul. 31, 2013 Capital lease obligations	Jul. 31, 2012 Capital lease obligations
Long-term debt
Long-term debt	$ 410,050,000	$ 452,908,000			$ 327,200,000	$ 369,800,000																												$ 80,000,000	$ 80,000,000										$ 2,850,000	$ 3,108,000
Maximum borrowing capacity										665,000,000									15,000,000
Maturity date								Jul. 24, 2017
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 range from 69 to 72 percent for the period of August through September 2013, 81 to 83 percent for the period of October through December 2013 and 68 to 73 percent for the period of January through July 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												69.00%	72.00%	81.00%	83.00%	68.00%	73.00%
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)								0.375%
Interest rate swaps disclosures
Notional Amount			215,000,000	215,000,000
Fixed Interest Rate			0.29%	1.19%
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 $242 million as of July 31, 2013, which exceeded the excess availability requirement by $185 million. The fixed charge coverage ratio was 2.72 as of July 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 July 31, 2013, we were in compliance with all covenants.
Fixed charge coverage ratio									2.72		1.0																													1.0
Remaining borrowing capacity									242,000,000
Remaining borrowing capacity in excess of minimum availability requirement									185,000,000
Debt issuance costs					12,100,000																																	4,400,000
Interest paid					10,600,000	14,300,000	10,400,000																											8,900,000	20,800,000	21,700,000
Prepayment of outstanding principal balance																																										60,500,000
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 July 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	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 July 31, 2013, we were in compliance with all covenants.
Life of the credit agreement									5 years																														5 years
Fees charged to earnings associated with debt amendment																																											12,500,000
Interest expense																																						2,000,000					45,800,000
Unamortized debt issuance costs charged to interest expense																																	6,500,000										10,300,000	20,300,000
Unamortized debt issuance costs charged to other assets										5,600,000																													2,400,000
Prepayment premium																																									3,000,000
Prepayment premium and other costs charged to interest expense																																											$ 2,700,000

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) (USD $) In Thousands, unless otherwise specified	Jul. 31, 2013	Jul. 31, 2012
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable	$ 135,650	$ 133,071
Accrued payroll	20,379	12,734
Accrued taxes	16,716	15,166
Accrued and straight-line rent	11,955	11,904
Other	35,858	32,207
Accounts payable and accrued liabilities	$ 220,558	$ 205,082