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 NOVEMBER 30, 1994.
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 December 30, 1994, 6,144,604 shares of the
registrant's common stock were outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(in thousands except share and per share data)
Three Months Ended Six Months Ended
November 30, November 30,
(Unaudited) (Unaudited)
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales $ 49,946 $ 53,189 $ 88,532 $ 105,235
Cost of Sales 46,011 48,545 80,757 96,913
3,935 4,644 7,775 8,322
Selling, General & Admin. 2,374 2,840 4,672 5,280
Interest Expense - net 840 968 1,803 1,942
3,214 3,808 6,475 7,222
Income before taxes,
and minority interest 721 836 1,300 1,100
Income tax provision (Note 2) 31 69 136 101
Income before minority interest 690 767 1,164 999
Minority interest in loss of
consolidated subsidiary (70) (56) (120) (105)
Net Income $ 760 $ 823 $ 1,284 $ 1,104
Net income per share:
Income per share $ 0.12 $ 0.13 $ 0.20 $ 0.18
Average number of shares
outstanding during the
period 6,328,499 6,154,830 6,324,691 6,169,109
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Balance Sheets
November 30, 1994 May 31, 1994
(Unaudited)
(in thousands)
ASSETS
CURRENT ASSETS
Cash $ 1,537 $ 914
Notes & accounts receivable - net 27,708 23,200
Inventories - rough diamonds 12,427 14,467
- polished diamonds 43,797 39,019
Other current assets 4,426 3,255
TOTAL CURRENT ASSETS 89,895 80,855
PROPERTY, PLANT & EQUIPMENT - Net 6,229 6,253
NON-CURRENT ASSETS 5,902 6,070
$102,026 $93,178
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - banks $ 2,740 $ 9,900
Notes payable - other 3,000 3,000
Current portion of long term debt 4,285 4,285
Accounts payable & other
current liabilities 18,263 11,337
TOTAL CURRENT LIABILITIES 28,288 28,522
SENIOR NOTES 25,715 25,715
TOTAL LIABILITIES 54,003 54,237
MINORITY INTEREST
7,953 190
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized 10,000,000 shares;
issued and outstanding 6,137,938
and 6,131,106 shares,
respectively 6,138 6,131
Additional paid-in capital 25,915 25,884
Retained Earnings 8,017 6,736
TOTAL STOCKHOLDERS' EQUITY 40,070 38,751
$102,026 $93,178
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Cash Flows
Six Months Ended
November 30,
(Unaudited)
1994 1993
(in thousands)
Cash Flows From Operating Activities:
Net income $ 1,284 $ 1,104
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 685 974
Provision for uncollectible accounts 12 5
Minority interest in loss of
consolidated subsidiary (120) (105)
(Increase)/decrease in assets and increase/
(decrease) in liabilities:
Notes and accounts receivable (4,520) (2,839)
Inventories (2,738) (4,576)
Other current assets (1,171) 402
Non-current assets -- 3
Accounts payable and other current
liabilities 6,926 3,197
Net cash provided by (used in)
operating activities 358 (1,835)
Cash Flows From Investing Activities:
Capital expenditures (496) (602)
Net cash used in
investing activities (496) (602)
Cash Flows from Financing Activities:
Increase in minority interest 7,883 --
Increase (decrease) in short-term
borrowings (7,160) 3,140
Proceeds from exercise of stock options 38 --
Net cash provided by financing activities 761 3,140
Net increase in cash 623 703
Cash at beginning of year 914 553
Cash at end of period $ 1,537 $ 1,256
Supplemental Schedule of Non-cash
Investing activities:
Capitalized Leases -- $ 61
See Notes to Consolidated Financial Statements.
<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
six months ended November 30, 1994 and 1993 and the financial position
as of November 30, 1994.
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 $11,600,000 less a valuation
allowance of approximately $11,600,000 resulting in no net deferred tax
asset.
For the six months ended November 30, 1994, the Company has utilized
$1,600,000 of net operating loss carryforwards to offset Federal, state and
local income taxes. The provision for income taxes of $136,000 relates
to current foreign tax expense.
At November 30, 1994, the Company has available U.S. net operating
losses of $24.6 million which expire as follows:
Year Amount
1998 $9,600,000
1999 4,200,000
2000 4,300,000
2001 3,500,000
2002 500,000
2007 1,000,000
2008 1,500,000
$ 24,600,000
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Sales
Net sales during the six months ended November 30, 1994 of $88.5
million were $16.7 million, or 16%, below the $105.2 million in sales
during the comparable period last year.
Revenue from the sale of polished diamonds increased 60% to $36.8
million from $23.0 million during the comparable six month period.
For the three month period ended November 30, polished sales
increased 55% from $13.5 million to $20.8 million. During both the six
month and three month periods the Company's increased polished sales
were due to an increase in consumer spending as a result of improved
economic conditions in all geographic regions, including Japan,
important to the distribution of Lazare Diamonds as well as the
successful implementation of the Company's sales plans.
Rough sales decreased to $51.8 million for the six months ended
November 30, 1994 from $82.2 million a year ago. Rough sales
decreased 27% for the three months ended November 30. This was a
result of industry-wide market conditions and reduced supplies of rough
diamonds from one of the Company's primary suppliers. While the
rough trading operation fell short of initial expectations, the cutting
factories in Puerto Rico, Botswana and Russia continued to operate
efficiently with adequate amounts of rough diamonds available for
manufacturing. The Company believes this shortfall to be temporary
and is not expected to impact the sales of polished diamonds.
Gross Profit
Gross margin on net polished sales for the six months and three months
ended November 30, 1994 was 16.8% and 14.3%, respectively. This
was a decrease from the margins during the same periods last year of
26.8% and 25.5%, respectively. The lower margins were a result of
three primary factors: 1) sales of low margin goods produced in the
Company's new cutting factory in Botswana, 2) an overall net lower
margined product mix, and 3) certain pricing inducements used to
increase market penetration. The overall (both polished and rough
diamond) gross margin on net sales for the six month and three month
periods ended November 30, 1994 was 8.8% and 7.9%, respectively.
This compares to 7.9% and 8.7% in the six month and three month
periods last year. The overall gross margin increase in the first six
months was due to a greater percentage of higher margined polished
sales to overall sales as compared with last year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended
November 30, 1994 were $4.7 million, 12% less than the $5.3 million
level for this period last year. Expenses for the three months ended
November 30, 1994 of $2.4 million were 16% lower than the $2.8
million in the prior year. During the prior fiscal year, the Company
wrote off a non-recoverable insurance claim of $150,000 and
experienced higher foreign travel, advertising, legal and accounting
expenses.
Interest Expense
Interest expense for the six month period ended November 30, 1994
was $1,991,000 compared to $2,056,000 last year and $944,000 in the
three months ended November 30 compared to $1,044,000 in the prior
year.
Net Income Per Share
Income 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 November 30, 1994 was $61.6
million which was $9.3 million greater than its working capital at May
31, 1994. The increase was due primarily to the cash investment made
by the Botswana Development Corporation in Lazare Kaplan Botswana
(Pty) Ltd., a consolidated subsidiary, of approximately $8.0 million,
which occurred on August 31, 1994.
Stockholders' equity was $40.1 million at November 30, 1994 as
compared to $38.8 million at May 31, 1994. No dividends were paid
to stockholders during the six months ended November 30, 1994.
<PAGE>
Item 6.
EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(27) Financial Data Schedule
<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: January 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> EXHIBIT 27
----------
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.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> NOV-30-1994
<CASH> 1,537
<SECURITIES> 0
<RECEIVABLES> 27,885
<ALLOWANCES> 177
<INVENTORY> 56,224
<CURRENT-ASSETS> 89,895
<PP&E> 13,365
<DEPRECIATION> 7,136
<TOTAL-ASSETS> 102,026
<CURRENT-LIABILITIES> 28,288
<BONDS> 25,715
<COMMON> 6,138
0
0
<OTHER-SE> 33,932
<TOTAL-LIABILITY-AND-EQUITY> 102,026
<SALES> 88,532
<TOTAL-REVENUES> 88,532
<CGS> 80,757
<TOTAL-COSTS> 80,757
<OTHER-EXPENSES> 4,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,803
<INCOME-PRETAX> 1,300
<INCOME-TAX> 136
<INCOME-CONTINUING> 1,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,284
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
