<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, 1999.
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, 1999, 8,128,973 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 Six Months Ended
November 30, November 30,
(Unaudited) (Unaudited)
------------------ ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $111,906 $74,705 $181,648 $143,549
Cost of sales 103,711 70,962 166,961 136,613
--------- ------- -------- --------
8,195 3,743 14,687 6,936
--------- ------- -------- --------
Selling, general and
administrative expenses 5,045 3,927 8,696 7,283
Interest expense - net 819 820 1,526 1,409
Legal settlement and related costs (*) 4,250 - 5,048 -
--------- ------- -------- --------
10,114 4,747 15,270 8,692
--------- ------- -------- --------
Income/(loss) before taxes (1,919) (1,004) (583) (1,756)
Income tax provision/(benefit) (Note 2) (1,058) (377) (738) (582)
--------- ------- -------- --------
Income/(loss) before cumulative effect
of change in accounting principle (861) (627) 155 (1,174)
Cumulative effect of change in method
of accounting for reporting the costs of
start-up activities in accordance with
Statement of Position 98-5 (Note 5) - - (1,522) -
--------- ------- -------- --------
Net income/(loss) $ (861) $ (627) $ (1,367) $ (1,174)
========= ======= ======== ========
Income/(loss) per share (Note 3)
Basic earnings/(loss) per share before
cumulative effect of change in
accounting principle $ (0.10) $ (0.07) $ 0.02 $ (0.14)
========= ======= ======== ========
Basic earnings/(loss) per share $ (0.10) $ (0.07) $ (0.16) $ (0.14)
========= ======= ======== ========
Average number of shares
outstanding during the period 8,261,323 8,509,896 8,315,321 8,521,223
========= ========= ========= =========
Diluted earnings/(loss) per share
before cumulative effect of change
in accounting principle $ (0.10) $ (0.07) $ 0.02 $ (0.14)
========= ======= ======== ========
Diluted earnings/(loss) per share $ (0.10) $ (0.07) $ (0.16) $ (0.14)
========= ======= ======== ========
Average number of shares
outstanding during the period 8,261,323 8,509,896 8,315,321 8,521,223
========= ========= ========= =========
</TABLE>
(*) Approximately $798,000 of settlement costs incurred during the first quarter
have been reclassified to conform to the current presentation.
See Notes to Consolidated Financial Statements.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
NOVEMBER 30, 1999 May 31, 1999
(Unaudited)
----------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 5,494 $ 5,181
Accounts receivable - net 72,481 32,902
Inventories - rough diamonds 27,572 30,363
- polished diamonds 55,516 50,991
Prepaid expenses and other current assets 16,820 13,038
Deferred tax assets - current 1,811 1,450
-------- --------
TOTAL CURRENT ASSETS 179,694 133,925
DEFERRED TAX ASSETS, net 8,749 7,665
NON-CURRENT ASSETS, net 11,402 10,323
-------- --------
$199,845 $151,913
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & other current liabilities $ 56,042 $ 25,186
Notes payable - banks 19,119 2,158
-------- --------
TOTAL CURRENT LIABILITIES 75,161 27,344
SENIOR NOTES AND OTHER LONG-TERM DEBT 40,806 38,575
-------- --------
TOTAL LIABILITIES 115,967 65,919
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share
Authorized 5,000,000 shares;
no shares outstanding - -
Common stock, par value $1 per share
Authorized 20,000,000 shares;
issued 8,538,223 and 8,535,493 shares 8,538 8,535
Additional paid-in capital 58,161 58,149
Foreign currency translation adjustment 680 44
Retained earnings 19,112 20,479
-------- --------
86,491 87,207
Less treasury stock, 343,650 and 167,150 shares
at cost (2,613) (1,213)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 83,878 85,994
-------- --------
$199,845 $151,913
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $(1,367) $(1,174)
Adjustments to reconcile net income/(loss)
to net cash provided by/(used in)operating activities:
Depreciation and amortization 684 458
Provision for uncollectible accounts 30 30
Deferred income taxes (774) (585)
Cumulative effect of change in method of accounting 1,522 -
(Increase)/decrease in assets and increase/
(decrease) in liabilities:
Notes and accounts receivable (39,609) (10,489)
Inventories (1,734) 7,951
Prepaid expenses and other current assets (5,975) (3,300)
Non-current assets (389) (4,134)
Accounts payable and other current liabilities 30,856 (9,304)
------- -------
Net cash (used in)/provided by operating activities (16,756) (20,547)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,374) (1,118)
------- -------
Net cash used in investing activities (1,374) (1,118)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,400) (356)
Increase in short-term borrowings 16,961 5,358
Increase in long-term borrowings 2,231 19,300
Proceeds from exercise of stock options 15 4
------- -------
Net cash provided by financing activities 17,807 24,306
------- -------
Effect of foreign currency translation adjustment 636 (122)
------- -------
Net increase/(decrease) in cash 313 2,519
Cash at beginning of year 5,181 1,222
------- -------
Cash at end of period $ 5,494 $ 3,741
======= =======
</TABLE>
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 six and three months ended
November 30, 1999 and 1998 and the financial position as of November 30, 1999.
The balance sheet at May 31, 1999 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 1999. 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 foreign 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 in which they conduct business.
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 as of November 30, 1999,
which is comprised primarily of operating loss carryforwards, is approximately
$11,145,000 less a valuation allowance of approximately $585,000 resulting in a
net deferred tax asset of $10,560,000. For the six months ended November 30,
1999, the Company generated approximately $2,775,000 of net operating losses
which can be used to offset future Federal, state and local income taxes. At
November 30, 1999, the Company has available U.S. net operating losses of
$23,125,000 which expire as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000 $ 2,000,000
2001 3,500,000
2002 500,000
2007 500,000
2008 900,000
2010 400,000
2013 1,200,000
2019 11,350,000
2020 2,775,000
-----------
$23,125,000
===========
</TABLE>
5
<PAGE>
3. EARNINGS/(LOSS) PER SHARE
Basic and diluted earnings per share are computed in accordance with Financial
Accounting Standards Board Statement No. 128 "Earnings per Share." Basic
earnings per share is computed based upon the weighted average number of common
shares outstanding. Diluted earnings per share includes the impact of dilutive
stock options.
4. COMPREHENSIVE INCOME/(LOSS)
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) established rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires foreign currency
translation adjustments to be included in other comprehensive income. For the
six months ended November 30, 1999 and 1998, total comprehensive loss was
$731,000 and $1,296,000, respectively.
5. CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR START-UP COSTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities", which was required for
financial statements for fiscal years beginning after December 15, 1998. The SOP
broadly defines start-up costs as those one-time activities related to opening a
new facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer, initiating a new
process in an existing facility or commencing some new operation. The SOP
requires that start-up costs capitalized prior to adoption be written off as a
cumulative effect of a change in accounting principle and any future start-up
costs be expensed as incurred. The Company was required to adopt this standard
on June 1, 1999 and recorded a non-cash charge of $1,522,000 (net of tax benefit
of $671,000). This amount is primarily comprised of a) the start-up expenses
related to the operations of the Company's newly formed, wholly owned
subsidiary, Pegasus Overseas Ltd. and the signing and implementation of its ten
year agreement with a wholly owned subsidiary of General Electric Company, and
b) the start-up expenses related to the signing and implementation of the March
1999 Cooperation Agreement with AK Almazi Rossii Sakha of Russia. The effect of
adoption of SOP 98-5 on income from continuing operations for the six months
ended November 30, 1999 was insignificant.
6. SENIOR NOTES AND REVOLVING LOAN AGREEMENT
The Company was not in compliance with a financial covenant under its Senior
Note Agreement and its revolving loan agreement as of November 30, 1999. The
Noteholders and the banks have each given waivers to the Company with respect to
this covenant for the period ended November 30, 1999.
6
<PAGE>
7. LEGAL SETTLEMENT AND RELATED COSTS
As previously disclosed in the Company's Form 8-K, dated November 2, 1999, a
settlement agreement, dated October 18, 1999, was signed which settled all of
the various disputes among the Company and other related parties and
International Diamond Traders CY B.V.B.A. ("IDT") and Avi Neumark, the President
and controlling stockholder of IDT. The Company has agreed to pay the parties
the sum of $3,275,000 over a period of 40 months. The total cost of the
settlement to the Company during the six months ended November 30, 1999 was
$5,048,000, including related legal and other expenses.
8. NEW CREDIT FACILITY
In September 1999, the Company entered into a $20 million unsecured line of
credit with a bank at an interest rate of 150 basis points above the bank's base
rate. This line of credit was drawn upon during the second quarter ended
November 30, 1999 and will be available for the Company's working capital
requirements.
9. SUBSEQUENT EVENT
In December 1999 a subsidiary of the Company completed a hedging transaction
whereby it borrowed, at a fixed rate, 1.1 billion Japanese Yen (approximately
$10,000,000) under a loan facility with one of its primary commercial bank
lenders, payable in six quarterly installments of 96,250,000 Yen each,
commencing on March 7, 2000 until December 7, 2001, at which time the entire
principal is payable in full, plus interest. The loan bears interest at a rate
equal to the prime rate plus 1% or the 90-day LIBOR rate for Yen borrowings
plus 1% (which rate is currently 1.36%), at the option of the borrower. The
Company has guaranteed the payment of the loan and has secured its guarantee
by pledging interest bearing deposits of approximately $10,000,000 to the bank.
7
<PAGE>
10. Geographic Segment Information
Revenue, gross profit and income/(loss) before income tax provision for the six
months ended November 30, 1999 and 1998 and identifiable assets at the end of
each of those periods, classified by geographic area, which was determined by
where sales originated from and where identifiable assets are held, were as
follows (in thousands):
<TABLE>
<CAPTION>
North Far Elimi- Consoli-
America Europe Africa East nations dated
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months ended November 30, 1999
- ----------------------------------
Net sales to unaffiliated customers $47,333 $125,085 $181 $9,049 $ - $181,648
Transfers between geographic areas 10,926 3,365 93,987 - (108,278) -
---------------------------------------------------------------
Total revenue $58,259 $128,450 $94,168 $9,049 ($108,278) $181,648
---------------------------------------------------------------
Gross profit $10,919 $1,882 $106 $1,780 $ - $14,687
---------------------------------------------------------------
Income/(loss) before income tax provision and
cumulative effect of change in accounting
principle ($1,375) $1,276 ($404) ($80) $ - ($583)
---------------------------------------------------------------
Identifiable assets at November 30, 1999 $156,198 $42,437 $37,859 $13,026 ($49,675) $199,845
---------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Six months ended November 30, 1998
- ----------------------------------
Net sales to unaffiliated customers $59,473 $67,578 $9,640 $6,858 $ - $143,549
Transfers between geographic areas 11,933 6,712 57,130 - (75,775) -
---------------------------------------------------------------
Total revenue $71,406 $74,290 $66,770 $6,858 ($75,775) $143,549
---------------------------------------------------------------
Gross profit $5,021 $246 $798 $1,150 ($279) $6,936
---------------------------------------------------------------
Income/(loss) before income tax provision ($2,372) ($61) $573 $383 ($279) ($1,756)
---------------------------------------------------------------
Identifiable assets at November 30, 1998 $147,154 $14,314 $10,710 $7,222 ($23,364) $156,036
---------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The identifiable assets which are included in the eliminations primarily
represent advances to affiliates. These advances are included therein since the
Company, which is the parent company, finances the operations of these
affiliates.
8
<PAGE>
10. Geographic Segment Information (continued)
Revenue and gross profit for the six months ended November 30, 1999 and 1998
classified by product were as follows (in thousands):
<TABLE>
<CAPTION>
Polished Rough
diamonds diamonds Total
-------------------------------
<S> <C> <C> <C>
Six months ended November 30, 1999
- ----------------------------------
Net sales $59,706 $121,942 $181,648
-------------------------------
Gross profit $12,088 $2,599 $14,687
-------------------------------
Six months ended November 30, 1998
- ----------------------------------
Net sales $54,237 $89,312 $143,549
-------------------------------
Gross profit $5,832 $1,104 $6,936
-------------------------------
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This quarterly report contains, in addition to historical information, certain
forward-looking statements that involve significant risks and uncertainties.
Such forward-looking statements are based on management's belief as well as
assumptions made by, and information currently available to, management pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. The Company's actual results could differ materially from those
expressed in or implied by the forward-looking statements contained herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Liquidity - Capital Resources" and 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, 1999. The Company undertakes no
obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date of this quarterly report or to reflect the occurrence of other
unanticipated events.
RESULTS OF OPERATIONS
NET SALES
Net sales during the six months ended November 30, 1999 were $181.6 million
compared to $143.5 million in sales during the comparable period last year, an
increase of 27%. For the three month period ended November 30, 1999 net sales
were $111.9 million compared to $74.7 million in the second quarter last year,
an increase of 50%.
Revenue from the sale of polished diamonds was $59.7 million for the six months
ended November 30, 1999 compared to $54.2 million in the comparable period last
year. For the three month period ended November 30, 1999, polished diamond sales
were $30.0 million compared to $28.8 million in the second quarter last year.
Polished diamond revenue was positively impacted during the six months ended
November 30, 1999 by continued strong sales in Japan and Southeast Asia. For the
three months ended November 30, 1999, polished diamonds revenue increased due to
sales increases in the Far East.
Rough diamond sales were $121.9 million for the six months ended November 30,
1999 compared to $89.3 million in the comparable period last year. For the three
months ended November 30, 1999, rough diamond sales were $81.9 million compared
to $45.9 million in the second quarter last year. The increases from the prior
year were primarily attributable to increased purchases of better quality rough
diamonds from the Company's one of the Company's primary rough diamond suppliers
as well as the positive effects of the Company's recent reorganization of its
rough diamond buying operations in Africa. Although the Company's buying
operations in Angola have continued in the normal course, its agreement with
Empresa Nacional de Diamantes de Angola, Angola's national diamond mining
company (pursuant to which the Company was granted a license to purchase rough
diamonds from local Angolan miners and export such rough diamonds for resale)
expired on December 31, 1999. If the Company is required to cease operations in
Angola, the rough diamond revenue component of its business could be materially
adversely affected.
10
<PAGE>
GROSS PROFIT
During the six months ended November 30, 1999, gross margin on net polished
sales was 20%, compared to 11% in the comparable period last year. For the three
months ended November 30, 1999, gross margin on net polished sales was 22%
compared to 10% in the second quarter last year. Polished diamond margins were
favorably affected by higher margins on sales of large polished stones during
the six months and three months ended November 30, 1999. During the six months
ended November 30, 1999, overall (both polished and rough diamonds) gross margin
on net sales was 8.1% compared to 4.8% for the same period last year. For the
three months ended November 30, 1999, overall gross margin on net sales was 7.3%
compared to 5.0% in the second quarter last year. The increases from the prior
year were primarily due to the improved margins realized on polished diamond
sales during the current year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended November
30, 1999 were $8.7 million, compared to $7.3 million for this period last year.
For the three months ended November 30, 1999, selling, general and
administrative expenses were $5.0 million compared to $3.9 million in the second
quarter last year. These increases were primarily attributable to higher
compensation and benefit costs (including selling commissions), partially offset
in Japan by the effect of the strengthening yen when compared to the U.S. dollar
in current year.
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR START-UP COSTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities", which was required for
financial statements for fiscal years beginning after December 15, 1998. The SOP
broadly defines start-up costs as those one-time activities related to opening a
new facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer, initiating a new
process in an existing facility or commencing some new operation. The SOP
requires that start-up costs capitalized prior to adoption be written off as a
cumulative effect of a change in accounting principle and any future start-up
costs be expensed as incurred. The Company was required to adopt this standard
on June 1, 1999 and recorded a non-cash charge of $1,522,000 (net of tax benefit
of $671,000), or $0.18 per share. This amount is primarily comprised of a) the
start-up expenses related to the operations of the Company's newly formed,
wholly owned subsidiary, Pegasus Overseas Ltd. and the signing and
implementation of its ten year agreement with a wholly owned subsidiary of
General Electric Company, and b) the start-up expenses related to the signing
and implementation of the March 1999 Cooperation Agreement with AK Almazi Rossii
Sakha of Russia. The effect of adoption of SOP 98-5 on income from continuing
operations for the six months ended November 30, 1999 was insignificant.
INTEREST EXPENSE
Net interest expense for the six month period ended November 30, 1999 was $1.5
million compared to $1.4 million last year. For the three months ended November
30, 1999 net interest expense was $819,000 compared to $820,000 in the second
quarter last year. The increase during the six months ended November 30, 1999
was due to an increase in the average balance outstanding on the Company's
11
<PAGE>
revolving loan in the current year.
LEGAL SETTLEMENT AND RELATED COSTS
As described in Note 7. to the consolidated financial statements, in October
1999 the litigation which was commenced against the Company and other related
parties in March 1999 by International Diamond Traders CY B.V.B.A. ("IDT") and
Avi Neumark, the President and controlling stockholder of IDT, was settled. The
total cost of the settlement to the Company was $5,048,000, including related
legal and other expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at November 30, 1999 was $104.5 million, which was
$2.1 million lower than its working capital at May 31, 1999. The decrease was
primarily due to higher accounts payable and other current liabilities partially
offset by higher accounts receivable in the current period. The Company was not
in compliance with a financial covenant under its Senior Note Agreement and its
revolving loan agreement as of November 30, 1999. The Noteholders and the banks
have each given waivers to the Company with respect to this covenant for the
period ended November 30, 1999.
In September 1999, the Company entered into a $20 million unsecured line of
credit with a bank at an interest rate of 150 basis points above the bank's base
rate. This line of credit was drawn upon during the second quarter ended
November 30, 1999 and will be available for the Company's working capital
requirements. This facility is in addition to the Company's existing $40 million
long-term unsecured, revolving loan agreement. The Company believes that it has
the ability to meet its current and anticipated financing needs for the next
twelve months.
In December 1999 a subsidiary of the Company completed a hedging transaction
whereby it borrowed, at a fixed rate, 1.1 billion Japanese Yen (approximately
$10,000,000) under a loan facility with one of its primary commercial bank
lenders, payable in six quarterly installments of 96,250,000 Yen each,
commencing on March 7, 2000 until December 7, 2001, at which time the entire
principal is payable in full, plus interest. The loan bears interest at a rate
equal to the prime rate plus 1% or the 90-day LIBOR rate for Yen borrowings
plus 1% (which rate is currently 1.36%), at the option of the borrower. The
Company has guaranteed the payment of the loan and has secured its guarantee
by pledging interest bearing deposits of approximately $10,000,000 to the bank.
Stockholders' equity was $83.9 million at November 30, 1999 as compared to $86.0
million at May 31, 1999. No dividends were paid to stockholders during the six
months ended November 30, 1999. During the six months ended November 30, 1999,
the Company purchased 176,500 shares of its common stock which are shown as a
reduction of stockholders' equity.
YEAR 2000
In connection with the Company's efforts to update and modernize its information
systems, as well as to address its Year 2000 issue, the Company commenced the
implementation of a new, fully integrated computer system during the prior
fiscal year. This project was successfully completed during the three months
ended November 30, 1999. The majority of the costs of this implementation were
capitalized by the Company. The Company utilized both internal and external
resources to implement and test its new software and hardware. The total cost of
this project is approximately $4.0 million, of which approximately $810,000
related to salary and benefit costs (for certain employees who were directly
involved with the project) and interest costs capitalized in accordance with
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed For or Obtained For Internal Use."
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Not applicable
PART 2
ITEM 1. LEGAL PROCEEDINGS
As more fully described in Note 7. to the consolidated financial
statements for the six months ended November 30, 1999, in October 1999
the litigation which was commenced against the Company and other related
parties in March 1999 by International Diamond Traders CY B.V.B.A.
("IDT") and Avi Neumark, the President and controlling stockholder of
IDT, was settled. The total cost of the settlement to the Company during
the six months ended November 30, 1999 was $5,048,000, including related
legal and other expenses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K
Reports on Form 8-K - The Company filed a Current Report on Form 8-K,
responding to Item 5 - "Other Events", on November 2, 1999.
13
<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
Executive Vice President and
Chief Financial Officer
Dated: January 13, 2000
14
<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-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 5,494
<SECURITIES> 0
<RECEIVABLES> 72,710
<ALLOWANCES> 229
<INVENTORY> 83,088
<CURRENT-ASSETS> 179,286
<PP&E> 17,286
<DEPRECIATION> 8,273
<TOTAL-ASSETS> 199,845
<CURRENT-LIABILITIES> 75,161
<BONDS> 38,575
<COMMON> 8,538
0
0
<OTHER-SE> 75,340
<TOTAL-LIABILITY-AND-EQUITY> 199,845
<SALES> 181,648
<TOTAL-REVENUES> 181,648
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<TOTAL-COSTS> 166,961
<OTHER-EXPENSES> 8,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,526
<INCOME-PRETAX> (583)
<INCOME-TAX> (738)
<INCOME-CONTINUING> 155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,522)
<NET-INCOME> (1,367)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
