<PAGE>
<PAGE>
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, 1996.
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 31, 1996, 8,061,738 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)
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 80,270 $ 72,294 $ 149,671 $ 133,991
Cost of Sales 72,501 66,537 136,370 123,557
--------- --------- --------- ---------
7,769 5,757 13,301 10,434
--------- --------- --------- ---------
Selling, General &
Administrative Expenses 3,501 3,010 6,493 5,786
Interest Expense - net 1,329 1,033 2,274 2,049
--------- --------- --------- ---------
4,830 4,043 8,767 7,835
--------- --------- --------- ---------
Income before taxes
and minority interest 2,939 1,714 4,534 2,599
Income tax provision 284 215 377 272
--------- --------- --------- ---------
Income before minority interest 2,655 1,499 4,157 2,327
Minority interest in income
/(loss) of consolidated
subsidiary (249) (30) (405) 13
--------- --------- --------- ---------
Net Income $ 2,904 $ 1,529 $ 4,562 $ 2,314
========= ========= ========= =========
Net income per share:
Income per share $ 0.44 $ 0.25 $ 0.70 $ 0.37
========= ========= ========= =========
Average number of shares
outstanding during the
period 6,545,116 6,222,540 6,497,793 6,229,408
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
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<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, 1966 May 31, 1996
(Unaudited)
-------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,650 $ 905
Accounts receivable - net 38,438 25,493
Inventories - rough diamonds 9,164 9,320
- polished diamonds 58,962 46,979
Prepaid expenses and other
current assets 13,635 10,142
-------- --------
TOTAL CURRENT ASSETS 121,849 92,839
PROPERTY, PLANT & EQUIPMENT - Net 6,994 7,198
OTHER ASSETS 4,498 5,029
-------- --------
$133,341 $105,066
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & other
current liabilities $ 21,831 $ 15,770
Notes payable - other 3,000 3,000
Notes payable - banks 17,450 --
-------- --------
TOTAL CURRENT LIABILITIES 42,281 18,770
SENIOR NOTES AND OTHER
LONG-TERM DEBT 34,230 34,155
-------- --------
TOTAL LIABILITIES 76,511 52,925
-------- --------
MINORITY INTEREST 6,866 7,271
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized 10,000,000 shares; issued and
outstanding 6,261,071 and 6,176,425 shares,
respectively 6,261 6,176
Additional paid-in capital 26,545 26,098
Retained earnings 17,158 12,596
-------- --------
TOTAL STOCKHOLDERS' EQUITY 49,964 44,870
-------- --------
$133,341 $105,066
======== ========
</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)
------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,562 $ 2,314
Adjustments to reconcile net income
to net cash provided/(used in) by
operating activities:
Depreciation and amortization 1,215 1,099
Provision for uncollectible accounts 45 30
Minority interest in income/(loss) of
consolidated subsidiary (405) 13
(Gain)/loss on disposition of
fixed assets 19 (45)
(Increase)/decrease in assets and increase/
(decrease) in liabilities:
Notes and accounts receivable (12,990) (5,040)
Inventories (11,827) (3,017)
Other current assets (3,493) (2,213)
Non-current assets (31) (394)
Accounts payable and other current
liabilities 6,061 8,784
-------- --------
Net cash provided by/(used in)
operating activities (16,844) 1,531
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 18 180
Capital expenditures (486) (764)
-------- --------
Net cash used in investing activities (468) (584)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(decrease) in short-term borrowings 17,450 (625)
Increase in long-term borrowings 75 --
Proceeds from exercise of stock options 532 --
-------- --------
Net cash provided by/(used in)
financing activities 18,057 (625)
-------- --------
Net increase in cash 745 322
Cash at beginning of year 905 2,532
-------- --------
Cash at end of period $ 1,650 $ 2,854
======== ========
</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,
1996 and 1995 and the financial position as of November 30, 1996.
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. At November 30, 1996, the Company's net deferred tax asset,
relating primarily to operating loss carryforwards, was approximately $7,400,000
less a valuation allowance of approximately $7,400,000 resulting in no net
deferred tax asset. These amounts are reduced as the Company recognizes net
operating loss carryforwards during the period.
For the six months ended November 30, 1996, the Company recognized approximately
$5,300,000 of net operating loss carryforwards to offset Federal, state and
local income taxes.
5
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<PAGE>
Taxes (continued)
At November 30, 1996, the Company has available U.S. net operating losses of
$14.2 million which expire as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 3,000,000
2000 4,300,000
2001 3,500,000
2002 500,000
2007 1,000,000
2008 1,500,000
2010 400,000
------------
$ 14,200,000
============
</TABLE>
3. Credit Facilities
In September 1996, the Company entered into a loan agreement with one of its
banks providing for an additional seasonal short-term line of credit of up to
$8.0 million, with an interest rate equal to any one of a) one eighth of one
percent above the bank's prime rate, b) two and one-half percent above the
London Interbank Offered Rate, or c) two and one-half percent above the bank's
cost of funds rate, depending on the method of borrowing selected by the
Company. The Company had a balance of $2,750,000 outstanding under this
agreement at November 30, 1996. All amounts borrowed under this agreement are
due and payable on January 31, 1997.
In November 1996, the Company's long-term unsecured, revolving loan agreement
was amended to increase the amount the Company may borrow from $27,500,000 to
$35,500,000. At November 30, 1996, there was an aggregate balance outstanding of
$27,500,000 under this loan agreement.
4. Common Stock Offering
On December 12, 1996, the Company completed an offering of 1,800,000 shares of
its common stock at a price of $17.00 per share. The net proceeds, after
offering expenses, were approximately $28.3 million. The Company intends to use
the net proceeds to prepay all or a portion of the Company's outstanding Senior
Notes and to repay a portion of its outstanding revolving bank loans.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in Item 1 - "Description of
Business" and elsewhere in the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
RESULTS OF OPERATIONS
NET SALES
Net sales during the six months ended November 30, 1996 of $149.7 million were
$15.7 million, or 12%, above the $134.0 million in sales during the comparable
period last year. For the three month period ended November 30, net sales
increased 11% to $80.3 million from $72.3 million in the second quarter last
year.
Revenue from the sale of polished diamonds increased 12% to $51.2 million from
$45.9 million during the comparable six month period. For the three month period
ended November 30, polished diamond sales increased 28% to $33.1 million from
$25.9 million. These increases were attributable to continued growth of polished
diamond sales in the United States and Southeast Asia and, in the second
quarter, also as a result of increased shipments, a portion of which were
delayed from the first quarter, of large polished diamonds received from the
Company's facility in Russia.
Rough sales increased to $98.4 million for the six months ended November 30,
1996 from $88.1 million a year ago. Rough sales increased 2% to $47.2 million
for the three months ended November 30. The increases from the prior year were a
result of the growth of the Company's rough buying operations in Africa.
GROSS PROFIT
Gross margin on net polished sales for the six months and three months ended
November 30, 1996 was 19.1% and 19.7%, respectively. This was an increase from
the margins of 14.2% and 13.4%, respectively, during the same periods last year.
These increases were primarily a result of an increased number of larger size
stones sold (which historically have higher margins) in the current year and
polished diamond price increases implemented earlier in the year. The overall
(both polished and rough diamond) gross margin on net sales for the six month
and three
7
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
month periods ended November 30, 1996 was 8.9% and 9.7%, respectively. This
compares to 7.8% and 8.0%, respectively, for the same periods last year. The
overall margin increases were due primarily to the improvement of the polished
diamond gross margin as compared with last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended November
30, 1996 were $6.5 million, compared to $5.8 million for this period last year.
During the three months ended November 30, expenses were $3.5 million as
compared to $3.0 million in the prior year. The increases were primarily
attributable to higher consulting and legal expenses associated with the
development of expansion opportunities, as well as higher selling commissions as
a result of higher polished sales in the current year.
INTEREST EXPENSE
Interest expense for the six month period ended November 30, 1996 was $2.3
million compared to $2.1 million last year and $1.4 million in the three months
ended November 30, 1996 compared to $1.1 million in the prior year. The
increases were a result of higher average balances outstanding under the
Company's revolving loans and lines of credit in the current year.
NET INCOME PER SHARE
Income per share is computed based on the weighted average number of shares
outstanding including, as appropriate, the assumed exercise of all dilutive
stock options, during each period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at November 30, 1996 was $79.6 million, which was
$5.5 million greater than its working capital at May 31, 1996. The increase was
due to higher inventories and accounts receivable partially offset by an
increase in short-term borrowings in the current year.
On December 12, 1996, the Company completed an offering of 1,800,000 shares of
its common stock. The Company intends to use the net proceeds to prepay all or a
portion of its outstanding Senior Notes and to repay a portion of its
outstanding revolving bank loans. In addition, during the second quarter ended
November 30, 1996, the Company's long-term unsecured, revolving loan facility
was increased from $27,500,000 to $35,500,000. In September 1996, the Company
also entered into a loan agreement
8
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
with one of its banks providing for an additional seasonal short-term line of
credit of up to $8.0 million which matures on January 31, 1997.
The Company believes that it has the ability to meet its current and anticipated
financing needs for the next twelve months.
Stockholders' equity was $50.0 million at November 30, 1996 as compared to $44.9
million at May 31, 1996. No dividends were paid to stockholders during the six
months ended November 30, 1996.
9
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K
(i) Current Report on Form 8-K, dated October 31,
1996, as amended by Current Report on Form
8-K/A dated November 15, 1996, with respect to
Item 5 - "Other Events".
10
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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
Executive Vice President and
Chief Financial Officer
Dated: January 9, 1997
11
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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-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 1,650
<SECURITIES> 0
<RECEIVABLES> 38,740
<ALLOWANCES> 302
<INVENTORY> 68,126
<CURRENT-ASSETS> 121,849
<PP&E> 15,610
<DEPRECIATION> 8,616
<TOTAL-ASSETS> 133,341
<CURRENT-LIABILITIES> 42,281
<BONDS> 34,230
<COMMON> 6,261
0
0
<OTHER-SE> 43,703
<TOTAL-LIABILITY-AND-EQUITY> 133,341
<SALES> 149,671
<TOTAL-REVENUES> 149,671
<CGS> 136,370
<TOTAL-COSTS> 136,370
<OTHER-EXPENSES> 6,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,274
<INCOME-PRETAX> 4,534
<INCOME-TAX> 377
<INCOME-CONTINUING> 4,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,562
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
</TABLE>
