SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED FEBRUARY 28, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
Commission File No. 1-7848
LAZARE KAPLAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2728690
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
529 Fifth Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
(212) 972-9700
(Registrant's telephone number, including area code)
--------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of March 31, 1995, 6,147,808 shares of the registrant's common stock
were outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
- - ------------------------------
ITEM 1. Financial Statements
- - -----------------------------
Consolidated Statements of Operations
- - -------------------------------------
(in thousands except share and per share data)
- - ----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
(unaudited) (unaudited)
----------- -----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 49,449 $ 55,698 $ 137,981 $ 160,934
Cost of Sales 47,915 50,992 128,671 147,905
----------- ----------- ----------- -----------
1,534 4,706 9,310 13,029
----------- ----------- ----------- -----------
Selling, General &
Administrative 2,627 2,677 7,299 7,957
Interest Expense - net 795 905 2,598 2,848
----------- ----------- ----------- -----------
3,422 3,582 9,897 10,805
----------- ----------- ----------- -----------
Income before taxes,
and minority interest (1,888) 1,124 (587) 2,224
Income tax provision
(Note 2) 70 13 207 114
----------- ----------- ----------- -----------
Income before
minority interest (1,958) 1,111 (794) 2,110
Minority interest in loss
of consolidated subsidiary (280) (63) (400) (168)
----------- ----------- ----------- -----------
Net Income (Loss) $ (1,678) $ 1,174 $ (394) $ 2,278
=========== =========== =========== ===========
Net Income (Loss) per share:
- - ---------------------------
Income per share $ (0.27) $ 0.19 $ (0.06) $ 0.37
=========== =========== =========== ===========
Average number of shares
outstanding during the
period 6,326,909 6,267,501 6,322,789 6,194,425
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
Consolidated Balance Sheet
February 28, 1995 May 31, 1994
(Unaudited)
---------------------------------
(in thousands)
ASSETS
- - ------
CURRENT ASSETS
- - --------------
Cash $ 639 $ 914
Notes & accounts receivable - net 25,728 23,200
Inventories - rough diamonds 14,208 14,467
- polished diamonds 41,124 39,019
Other current assets 5,134 3,255
------- -------
TOTAL CURRENT ASSETS 86,833 80,855
PROPERTY, PLANT & EQUIPMENT - Net 6,910 6,253
NON CURRENT ASSETS 5,700 6,070
------- -------
$99,443 $93,178
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES
- - -------------------
Notes payable - banks $ 2,410 $ 9,900
Notes payable - other 3,000 3,000
Current portion of long term debt 4,285 4,285
Accounts payable & other
current liabilities 17,908 11,337
------- -------
TOTAL CURRENT LIABILITIES 27,603 28,522
SENIOR NOTES 25,715 25,715
------- -------
TOTAL LIABILITIES 53,318 54,237
------- -------
MINORITY INTEREST 7,673 190
------- -------
STOCKHOLDERS' EQUITY
- - --------------------
Common stock, par value $1 per share,
Authorized 10,000,000 shares;
issued and outstanding, 6,147,808
and 6,131,106 shares 6,148 6,131
Additional paid in capital 25,964 25,884
Retained earnings 6,340 6,736
TOTAL STOCKHOLDERS' EQUITY 38,452 38,751
$99,443 $93,178
======= =======
See Notes to Consolidated Financial Statements.
3
<PAGE>
Consolidated Statements of Cash Flows
Nine Months Ended
February 28,
(unaudited)
--------------------------
1995 1994
---- ----
(in thousands)
Cash Flows From Operating Activities:
- - ------------------------------------
Net income (loss) $ (394) $ 2,278
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,166 1,334
Provision for uncollectible accounts 16 210
Minority interest in loss of
consolidated subsidiary (400) (168)
(Increase)/decrease in assets and increase/
(decrease) in liabilities:
Notes and accounts receivable (2,545) (2,846)
Inventories (1,846) (6,225)
Other current assets (1,879) (1,228)
Non-current assets -- 4
Accounts payable and other current
liabilities 6,571 6,358
------- -------
Net cash provided by (used in)
operating activities 689 (283)
------- -------
Cash Flows From Investing Activities:
- - ------------------------------------
Capital expenditures (1,454) (774)
------- -------
Net cash used in investing activities (1,454) (774)
------- -------
Cash Flows From Financing Activities:
- - ------------------------------------
Increase in minority interest 7,883 --
Increase (decrease) in short-term borrowings (7,490) 830
Proceeds from exercise of stock options 97 26
------- -------
Net cash provided by financing activities 490 856
------- -------
Net increase (decrease) in cash (275) (201)
Cash at beginning of year 914 553
------- -------
Cash at end of period $ 639 $ 352
======= =======
Supplemental Schedule of Non Cash
Investing Activities:
Capitalized Leases -- $ 61
======= =======
See Notes to Consolidated Financial Statements
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------
(unaudited)
1. Interim Financial Reporting
---------------------------
This financial information has been prepared in conformity with the accounting
principles and practices reflected in the financial statements included in the
annual report filed with the Commission for the preceding fiscal year. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly Lazare Kaplan
International Inc.'s operating results for the nine months ended February 28,
1995 and 1994 and the financial position as of February 28, 1995.
The operating results for the interim periods presented are not necessarily
indicative of the operating results for a full year.
2. Taxes
-----
The Company's subsidiaries do business in foreign countries. The subsidiaries
are not subject to federal income taxes and their provisions have been
determined based upon the effective tax rates, if any, in the foreign countries.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The Company's net deferred tax asset is comprised primarily of
operating loss carryforwards which have a tax effect of approximately
$12,100,000 less a valuation allowance of approximately $12,100,000 resulting in
no net deferred tax asset.
For the nine months ended February 28, 1995, the Company has utilized $1,100,000
of net operating loss carryforwards to offset Federal, state and local income
taxes. The provision for income taxes of $207,000 relates to current foreign tax
expense.
5
<PAGE>
Taxes (continued)
- - ----------------
At February 28, 1995 the Company has available U.S. net operating losses of
$26.0 million which expire as follows:
Year Amount
---- ------
1998 $11,000,000
1999 4,200,000
2000 4,300,000
2001 3,500,000
2002 500,000
2007 1,000,000
2008 1,500,000
$26,000,000
===========
3. Senior Notes
------------
The Company is in default of a financial ratio covenant on its $30 million
senior notes. The Company has notified its noteholders of this default and,
based upon discussions with the noteholders, management believes it will obtain
waivers from the noteholders of this default. If a waiver is not obtained, the
noteholders will have the right to accelerate the Notes.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
Results of Operations
- - ---------------------
Net Sales
- - ---------
Net sales during the nine months ended February 28, 1995 of $138.0 million were
$23.0 million, or 14%, below the $160.9 million in sales during the comparable
period last year.
Revenue from the sale of polished diamonds increased 44% to $54.1 million from
$37.5 million during the comparable nine month period. For the three month
period ended February 28, polished sales increased 19% to $17.3 million from
$14.5 million. The Company experienced continued growth in Southeast Asia and
the Japanese market during the three months ended February 28, 1995 as compared
to the same period last year; however, weaknesses in the U.S. domestic market
caused the overall slower growth in sales in the third quarter.
Rough sales decreased to $83.9 million for the nine months ended February 28,
1995 from $123.4 million a year ago. Rough sales decreased 22% for the three
months ended February 28. This was a result of industry wide market conditions
and reduced supplies of rough diamonds made available from the Company's primary
supplier. While the rough trading operation continues to show revenue declines
from the prior year's results, the Company's cutting factories in Puerto Rico,
Botswana and Russia continued to operate efficiently with adequate amounts of
rough diamonds available for manufacturing from either primary or secondary
sources. The Company believes the reduced supply of rough diamonds is temporary
and it is not expected to impact the sales of polished diamonds.
Gross Profit
- - ------------
Gross margin on net polished sales for the nine months and three months ended
February 28, 1995 was 16.3% and 15.3%, respectively, excluding the effects of a
non recurring charge of approximately $1.8 million to write down to market value
the Company's small stone polished inventory produced at its newly constructed
manufacturing facility in Botswana. While the Company is encouraged at the
results of the Botswana operation including quality of production, number of
units produced, improved manufacturing efficiencies, continued lowering of
production costs and support from the Botswana Government, due to market
conditions, the Company experienced increased pressure on the selling price of
these goods during the current quarter which, in turn caused the carrying value
of this material to exceed its selling price. The gross margin level on net
polished sales for
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
- - --------------------------------------------------------------------------------
the nine months and three months ended February 28, 1995 was lower than the
margins during the same periods last year of 25.6% and 23.6%, respectively.
These decreases resulted from lower margined polished goods sold in the current
year, the inability of the Company to adequately increase prices, and continued
pressure on margins. The overall (both polished and rough diamond) gross margin
on net sales for the nine month and three month periods ended February 28, 1995
was 8.1% and 6.7%, respectively, excluding the effect of the inventory charge
discussed above. This compares to 8.1% and 8.5% in the nine month and three
month periods last year.
Selling, General and Administrative Expenses
- - --------------------------------------------
Selling, general and administrative expenses for the nine months ended February
28, 1995 were $7.3 million, 8% less than the $8.0 million level for this period
last year. Expenses for the three months ended February 28, 1995 of $2.6 million
were essentially unchanged from the $2.7 million in the prior year.
Interest expense
- - ----------------
Interest expense for the nine month period ended February 28, 1995 was
$2,837,000 compared to $3,016,000 last year and $846,000 in the three months
ended February 28 compared to $960,000 in the prior year. These decreases are a
result of lower average short-term borrowings outstanding during the current
year.
Net Income Per Share
- - --------------------
Income (loss) per share is computed based on the weighted average number of
shares outstanding, including the assumed exercise of all outstanding stock
options, during each period.
Liquidity and Capital Resources
- - -------------------------------
The Company's working capital at February 28, 1995 was $59.2 million, which was
$6.9 million greater than its working capital at May 31, 1994. The increase was
due primarily to the investment of approximately $8.0 million made on August 31,
1994 by the Botswana Development Corporation in Lazare Kaplan Botswana (Pty)
Ltd,. a consolidated subsidiary. This resulted in an increase in receivables and
inventory during the period.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
- - --------------------------------------------------------------------------------
The Company is in default of a financial ratio covenant on its $30 million
senior notes. The Company has notified the noteholders of this default and,
based upon discussions with the noteholders, management believes it will obtain
waivers from the noteholders of this default. If a waiver is not obtained, the
noteholders will have the right to accelerate the Notes.
Stockholders' equity was $38.5 million at February 28, 1995 as compared to $38.8
million at May 31, 1994. No dividends were paid to stockholders during the nine
months ended February 28, 1995.
PART II
- - -------
ITEM 3. Defaults Upon Senior Securities
- - ---------------------------------------
Reference is made to Management's Discussion and Analysis Liquidity and Capital
Resources, included in Part I, Item 2 of this report.
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q
- - --------------------------------------------------------------------------------
(A) Exhibits
(27) Financial Data Schedule
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAZARE KAPLAN INTERNATIONAL INC.
By (s) Sheldon L. Ginsberg
---------------------------
Sheldon L. Ginsberg
Vice President and
Chief Financial Officer
Dated: April 13, 1995
--------------
11
<PAGE>
EXHIBIT 27
----------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the balance
sheet and income statement and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 639
<SECURITIES> 0
<RECEIVABLES> 25,909
<ALLOWANCES> 181
<INVENTORY> 55,332
<CURRENT-ASSETS> 86,833
<PP&E> 14,324
<DEPRECIATION> 7,414
<TOTAL-ASSETS> 99,443
<CURRENT-LIABILITIES> 27,603
<BONDS> 25,715
<COMMON> 6,148
0
0
<OTHER-SE> 32,304
<TOTAL-LIABILITY-AND-EQUITY> 99,443
<SALES> 137,981
<TOTAL-REVENUES> 137,981
<CGS> 128,671
<TOTAL-COSTS> 128,671
<OTHER-EXPENSES> 9,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,598
<INCOME-PRETAX> (587)
<INCOME-TAX> 207
<INCOME-CONTINUING> (394)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (394)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
