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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997.
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, 1997, 8,400,121 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 Nine Months Ended
FEB. 28, Feb. 29, FEB. 28, Feb.29,
(unaudited) (unaudited)
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $56,463 $68,072 $206,134 $202,063
Cost of Sales 50,322 61,340 186,692 184,897
------- ------- -------- --------
6,141 6,732 19,442 17,166
------- ------- -------- --------
Selling, General &
Administrative 2,803 2,914 9,297 8,700
Interest Expense - net 444 967 2,718 3,016
------- ------- -------- --------
3,247 3,881 12,015 11,716
------- ------- -------- --------
Income before taxes,
and minority interest 2,894 2,851 7,427 5,450
Income tax provision 19 152 396 424
------- ------- -------- --------
Income before
minority interest 2,875 2,699 7,031 5,026
Minority interest in loss
of consolidated
subsidiary (187) (228) (593) (215)
------- ------- -------- --------
Net Income $ 3,062 $ 2,927 $ 7,624 $ 5,241
======= ======= ======== ========
NET INCOME PER SHARE:
Income per share $ 0.38 $ 0.47 $ 1.07 $ 0.84
======= ======= ======== ========
Average number of shares
outstanding during the
period 8,072,573 6,270,656 7,119,355 6,242,512
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, 1997 May 31, 1996
(Unaudited)
------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 14,571 $ 905
Accounts receivable - net 32,573 25,493
Inventories - rough diamonds 8,819 9,320
- polished diamonds 54,015 46,979
Prepaid expenses and other
current assets 11,096 10,142
-------- --------
TOTAL CURRENT ASSETS 121,074 92,839
PROPERTY, PLANT & EQUIPMENT - Net 6,827 7,198
OTHER ASSETS 4,172 5,029
-------- --------
$132,073 $105,066
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & other
current liabilities $ 15,159 $ 15,770
Notes payable - other 2,151 3,000
-------- --------
TOTAL CURRENT LIABILITIES 17,310 18,770
SENIOR NOTES AND OTHER LONG
TERM DEBT 21,430 34,155
-------- --------
TOTAL LIABILITIES 38,740 52,925
-------- --------
MINORITY INTEREST 6,678 7,271
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share,
Authorized 10,000,000 shares;
issued and outstanding, 8,398,955
and 6,176,425 shares, respectively 8,399 6,176
Additional paid-in capital 58,036 26,098
Retained earnings 20,220 12,596
-------- --------
TOTAL STOCKHOLDERS' EQUITY 86,655 44,870
-------- --------
$132,073 $105,066
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
FEB. 28, Feb. 29,
(unaudited)
---------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,624 $ 5,241
Adjustments to reconcile net income
to net cash provided by/(used in)
operating activities:
Depreciation and amortization 1,806 1,721
Provision for uncollectible accounts 60 55
Minority interest in loss of
consolidated subsidiary (593) (214)
(Gain)/loss on sale of assets 18 (45)
(Increase)/decrease in assets and increase/
(decrease) in liabilities:
Accounts receivable (7,140) (4,097)
Inventories (6,535) (2,848)
Prepaid and other current assets (954) (3,194)
Non-current assets 14 (418)
Accounts payable and other current
liabilities (611) (436)
-------- --------
Net cash used in
operating activities (6,311) (4,235)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 24 180
Capital expenditures (634) (1,074)
-------- --------
Net cash used in investing activities (610) (894)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term borrowings (849) --
Decrease in long-term borrowings (12,725) --
Proceeds from issuance of common stock, net 33,582 --
Proceeds from exercise of stock options 579 4
Increase in short-term borrowings -- 3,200
-------- --------
Net cash provided by financing activities 20,587 3,204
-------- --------
Net increase/(decrease) in cash 13,666 (1,925)
Cash at beginning of year 905 2,532
-------- --------
Cash at end of period $ 14,571 $ 607
======== ========
</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 nine months and three months
ended February 28, 1997 and February 29, 1996 and the financial position as of
February 28, 1997.
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 February 28, 1997, the Company's net deferred tax asset,
relating primarily to operating loss carryforwards, was approximately $5,400,000
less a valuation allowance of approximately $5,400,000 resulting in no net
deferred tax asset. These amounts are reduced as the Company recognizes net
operating loss carryforwards during the period.
For the nine months ended February 28, 1997, the Company recognized
approximately $8,800,000 of net operating loss carryforwards to offset Federal,
state and local income taxes.
5
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TAXES (CONTINUED)
At February 28, 1997 the Company has available U.S. net operating losses of
$10.7 million which expire as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000 3,800,000
2001 3,500,000
2002 500,000
2007 1,000,000
2008 1,500,000
2010 400,000
----------
$10,700,000
===========
</TABLE>
3. COMMON STOCK OFFERING
On December 12, 1996, the Company completed an offering of 1,800,000 shares of
its common stock. In addition, on January 15, 1997 the underwriters of the
public offering exercised in full their over-allotment option, purchasing an
additional 330,000 shares of common stock from the Company. The public offering
price of all shares of common stock sold in connection with the public offering,
including the option shares, was $17.00 per share. The total net proceeds to the
Company, after offering expenses, were approximately $33.6 million. The Company
used a portion of the net proceeds to repay 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 nine months ended February 28, 1997 of $206.1 million were
$4.0 million, or 2%, above the $202.1 million in sales during the comparable
period last year. For the three month period ended February 28, net sales
decreased 17% to $56.5 million from $68.1 million in the third quarter last
year.
Revenue from the sale of polished diamonds increased 14% to $74.6 million from
$65.7 million during the comparable nine month period. For the three month
period ended February 28, polished diamond sales increased 18% to $23.4 million
from $19.9 million. These increases were attributable to continued growth of
polished diamond sales in the United States and Southeast Asia.
Rough sales decreased to $131.5 million for the nine months ended February 28,
1997 from $136.3 million a year ago. Rough sales decreased 31% to $33.0 million
for the three months ended February 28. The decreases from the prior year were
primarily attributable to lower overall sales of better quality rough diamonds
by the Company's primary rough diamond supplier as well as lower purchases of
rough stones from the Company's buying operation in Zaire.
GROSS PROFIT
Gross margin on net polished sales for the nine months and three months ended
February 28, 1997 was 18.7% and 17.8%, respectively. The margins were 15.9% and
20.0%, respectively, during the same periods last year. The increase for the
nine months was primarily a result of an increased number of larger size stones
sold (which historically have higher margins) in the current year
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
and polished diamond price increases implemented earlier in the year. During the
three months ended February 28, 1997 the overall mix of polished stones sold
carried a slightly lower margin as compared to the prior year. The overall (both
polished and rough diamond) gross margin on net sales for the nine month and
three month periods ended February 28, 1997 was 9.4% and 10.9%, respectively.
This compares to 8.5% and 9.9%, respectively, for the same periods last year.
The overall margin increases were due primarily to the increase in polished
diamond sales as a percentage of total sales as compared with last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the nine months ended February
28, 1997 were $9.3 million, compared to $8.7 million for this period last year.
During the three months ended February 28, expenses were $2.8 million as
compared to $2.9 million in the prior year. The increase for the nine months was
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
Net interest expense for the nine month period ended February 28, 1997 was $2.7
million compared to $3.0 million last year and $444,000 in the three months
ended February 28, 1997 compared to $967,000 in the prior year. The decreases
were a result of lower average balances outstanding under the Company's
revolving loans and lines of credit in the current year as a result of using a
protion of the proceeds from the Company's secondary offering to repay these
obligations.
NET INCOME PER SHARE
Income per share is computed based on the weighted average number of shares
outstanding, including the assumed exercise of all dilutive stock options,
during each period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at February 28, 1997 was $103.8 million, which was
$29.7 million greater than its working capital at May 31, 1996. The increase was
primarily related to the completion of the secondary offering of 2,130,000
shares of the Company's common stock which occurred during the current quarter.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The net proceeds to the Company of the offering were $33.6 million.
The Company believes that it has the ability to meet its current and anticipated
financing needs for the next twelve months.
Stockholders' equity was $86.7 million at February 28, 1997 as compared to $44.9
million at May 31, 1996. No dividends were paid to stockholders during the nine
months ended February 28, 1997.
9
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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
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 Sheldon L. Ginsberg
--------------------------------
Sheldon L. Ginsberg
Executive Vice President and
Chief Financial Officer
Dated: April 4, 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> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 14,571
<SECURITIES> 0
<RECEIVABLES> 32,820
<ALLOWANCES> 247
<INVENTORY> 62,834
<CURRENT-ASSETS> 121,074
<PP&E> 15,743
<DEPRECIATION> 8,916
<TOTAL-ASSETS> 132,073
<CURRENT-LIABILITIES> 17,310
<BONDS> 21,430
<COMMON> 8,399
0
0
<OTHER-SE> 78,256
<TOTAL-LIABILITY-AND-EQUITY> 132,073
<SALES> 206,134
<TOTAL-REVENUES> 206,134
<CGS> 186,692
<TOTAL-COSTS> 186,692
<OTHER-EXPENSES> 9,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,718
<INCOME-PRETAX> 7,427
<INCOME-TAX> 396
<INCOME-CONTINUING> 7,624
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,624
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
