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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, 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 December 29, 1995, 6,147,808 shares of the registrant's common stock
were outstanding.
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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 Six Months Ended
November 30, November 30,
(Unaudited) (Unaudited)
--------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $72,294 $49,946 $133,991 $88,532
Cost of Sales 66,537 46,011 123,557 80,757
------- ------- -------- -------
5,757 3,935 10,434 7,775
------- ------- -------- -------
Selling, General &
Administrative Expenses 3,010 2,374 5,786 4,672
Interest Expense - net 1,033 840 2,049 1,803
------- ------- -------- -------
4,043 3,214 7,835 6,475
------- ------- -------- -------
Income before taxes
and minority interest 1,714 721 2,599 1,300
Income tax provision
(Note 2) 215 31 272 136
------- ------- -------- -------
Income before minority interest 1,499 690 2,327 1,164
Minority interest in income/(loss)
of consolidated subsidiary (30) (70) 13 (120)
------- ------- -------- -------
Net Income $ 1,529 $ 760 $ 2,314 $ 1,284
======= ======= ======== =======
Net income per share:
Income per share $ 0.25 $ 0.12 $ 0.37 $ 0.20
======= ======= ======== =======
Average number of shares
outstanding during the
period 6,222,540 6,328,499 6,229,408 6,324,691
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
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<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
November 30, 1995 May 31, 1995
(Unaudited)
-------------------------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,854 $ 2,532
Notes & accounts receivable - net 27,312 22,302
Inventories - rough diamonds 12,827 11,928
- polished diamonds 45,924 43,806
Other current assets 8,379 6,166
-------- --------
TOTAL CURRENT ASSETS 97,296 86,734
PROPERTY, PLANT & EQUIPMENT - Net 6,793 6,704
NON-CURRENT ASSETS 5,560 5,725
-------- --------
$109,649 $ 99,163
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - banks $ 3,500 $ 4,125
Notes payable - other 3,000 3,000
Current portion of long term debt 4,285 4,285
Accounts payable & other
current liabilities 24,818 16,034
-------- --------
TOTAL CURRENT LIABILITIES 35,603 27,444
SENIOR NOTES AND OTHER LONG
TERM DEBT 26,430 26,430
-------- --------
TOTAL LIABILITIES 62,033 53,874
-------- --------
MINORITY INTEREST 7,607 7,594
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized 10,000,000 shares;
issued and outstanding 6,147,808
and 6,147,808 shares,
respectively 6,148 6,148
Additional paid-in capital 25,964 25,964
Retained Earnings 7,897 5,583
-------- --------
TOTAL STOCKHOLDERS' EQUITY 40,009 37,695
-------- --------
$109,649 $ 99,163
======== ========
</TABLE>
See Notes to Consolidated Financial Statement
3
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Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
November 30,
(Unaudited)
-----------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,314 $ 1,284
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,099 923
Provision for uncollectible accounts 30 12
Minority interest in income/(loss) of
consolidated subsidiary 13 (120)
Gain on sale of assets (45) --
(Increase)/decrease in assets and increase/
(decrease) in liabilities:
Notes and accounts receivable (5,040) (4,520)
Inventories (3,017) (2,738)
Other current assets (2,213) (1,171)
Non-current assets (394) (238)
Accounts payable and other current
liabilities 8,784 6,926
------- -------
Net cash provided by operating activities 1,531 358
------- -------
Cash Flows From Investing Activities:
Proceeds from sale of assets 180 --
Capital expenditures (764) (496)
------- -------
Net cash used in investing activities (584) (496)
------- -------
Cash Flows from Financing Activities:
Increase in minority interest -- 7,883
Decrease in short-term borrowings (625) (7,160)
Proceeds from exercise of stock options -- 38
------- -------
Net cash provided by/(used in)
financing activities (625) 761
------- -------
Net increase in cash 322 623
Cash at beginning of year 2,532 914
------- -------
Cash at end of period $ 2,854 $ 1,537
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
4
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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,
1995 and 1994 and the financial position as of November 30, 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
$11,400,000 less a valuation allowance of approximately $11,400,000 resulting in
no net deferred tax asset.
For the six months ended November 30, 1995, the Company has utilized $1,800,000
of net operating loss carryforwards to offset Federal, state and local income
taxes.
5
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Taxes (continued)
At November 30, 1995, the Company has available U.S. net operating losses of
$24.8 million which expire as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $ 9,300,000
1999 4,200,000
2000 4,300,000
2001 3,500,000
2002 500,000
2007 1,000,000
2008 1,500,000
2010 500,000
-----------
$24,800,000
===========
</TABLE>
6
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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, 1995 of $134.0 million were
$45.5 million, or 51%, above the $88.5 million in sales during the comparable
period last year.
Revenue from the sale of polished diamonds increased 25% to $45.9 million from
$36.8 million during the comparable six month period. For the three month period
ended November 30, polished diamond sales increased 25% from $20.8 million to
$25.9 million. These increases were attributable to higher sales in the U.S.
domestic market, Europe and Japan, including increased volume of ideal cut melee
produced at the Company's factory in Botswana and sales of large polished stones
from its Russian production.
Rough sales increased to $88.1 million for the six months ended November 30,
1995 from $51.8 million a year ago. Rough sales increased 59% for the three
months ended November 30. The significant increases from the prior year were a
result of the Company's continued success in its Angolan rough buying operation
as well as an improved supply of rough diamonds from the Company's major
supplier in the current year.
Gross Profit
Gross margin on net polished sales for the six months and three months ended
November 30, 1995 was 14.2% and 13.4%, respectively. This was a decrease from
the margins of 16.8% and 14.3%, respectively, during the same periods last year
The decreases from last year resulted from the Company's inability to pass along
increased product costs and from the increased sales volume of stones cut and
polished jointly with Roskomdragmet (the Russian Government organization
responsible for diamond policy), which material has historically carried lower
margins. The overall (both polished and rough diamond) gross margin on net sales
for the six month and three month periods ended November 30, 1995 was 7.8% and
8.0%, respectively. This compares to 8.8% and 7.9%, respectively, for the same
periods last year. The overall margin decrease for the six months was due
primarily to a greater percentage of lower margined rough sales to overall sales
as compared with last year.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
On December 1, 1995, in response to an announced price increase by the Company's
primary rough supplier, the Company increased its selling prices in many
categories of its polished diamond inventory. These price increases should
positively impact both the overall gross margin as well as the gross margin on
net polished sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended November
30, 1995 were $5.8 million, compared to $4.7 million for this period last year.
During the three months ended November 30, expenses were $3.0 million as
compared to $2.4 million in the prior year. The increases were primarily
attributable to higher advertising and marketing costs, higher compensation and
benefits and additional rent and office expenses in connection with the opening
of a new sales office in Hong Kong.
Interest Expense
Interest expense for the six month period ended November 30, 1995 was $2,119,000
compared to $1,991,000 last year and $1,080,000 in the three months ended
November 30, 1995 compared to $944,000 in the prior year. The increases were a
result of the higher interest rate on the Company's Senior Notes in the current
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, 1995 was $61.7 million, which was
$2.4 million greater than its working capital at May 31, 1995.
Stockholders' equity was $40.0 million at November 30, 1995 as compared to $37.7
million at May 31, 1995. No dividends were paid to stockholders during the six
months ended November 30, 1995.
8
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K
None
9
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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 12, 1996
10
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<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> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> NOV-30-1995
<CASH> 2,854
<SECURITIES> 0
<RECEIVABLES> 27,553
<ALLOWANCES> 241
<INVENTORY> 58,751
<CURRENT-ASSETS> 97,296
<PP&E> 14,788
<DEPRECIATION> 7,995
<TOTAL-ASSETS> 109,649
<CURRENT-LIABILITIES> 35,603
<BONDS> 26,430
<COMMON> 6,148
0
0
<OTHER-SE> 33,861
<TOTAL-LIABILITY-AND-EQUITY> 109,649
<SALES> 133,991
<TOTAL-REVENUES> 133,991
<CGS> 123,557
<TOTAL-COSTS> 123,557
<OTHER-EXPENSES> 5,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,049
<INCOME-PRETAX> 2,599
<INCOME-TAX> 272
<INCOME-CONTINUING> 2,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,314
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
