-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pb1RP81c+y/+yIUPlwAebE0D7+ABHJq8PfJ+sQvTIC4Nc+9sPyEAeAytH3EjIOTG v4+V/oZBS0pZebPC8yJxow== 0000950117-03-001405.txt : 20030411 0000950117-03-001405.hdr.sgml : 20030411 20030411105948 ACCESSION NUMBER: 0000950117-03-001405 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030228 FILED AS OF DATE: 20030411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAZARE KAPLAN INTERNATIONAL INC CENTRAL INDEX KEY: 0000202375 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-JEWELRY, WATCHES, PRECIOUS STONES & METALS [5094] IRS NUMBER: 132728690 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07848 FILM NUMBER: 03646470 BUSINESS ADDRESS: STREET 1: 529 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2129729700 MAIL ADDRESS: STREET 1: 529 FIFTH AVE STREET 2: 529 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 a34946.txt LAZARE KAPLAN INTERNATIONAL INC. UNITED STATES 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 FEBRUARY 28, 2003. 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 28, 2003, 8,561,414 shares of the registrant's common stock were outstanding. Part I. Financial Information Item I. Financial Statements Lazare Kaplan International Inc. Financial Highlights ($ in thousands, except share and per share data)
Three Months Ended Nine Months Ended February 28, February 28, (Unaudited) (Unaudited) 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net sales $ 52,854 $ 48,291 $ 158,489 $ 145,801 Cost of Sales 46,830 42,460 141,044 131,362 ---------- ---------- ---------- ---------- Gross profit 6,024 5,831 17,445 14,439 Selling, general and administrative expenses 4,990 4,927 14,316 14,927 Interest expense (net) 87 467 368 2,004 ---------- ---------- ---------- ---------- 5,077 5,394 14,684 16,931 ---------- ---------- ---------- ---------- Income/(Loss) before income taxes and cumulative effect of change in accounting principle 947 437 2,761 (2,492) ---------- ---------- ---------- ---------- Income tax provision / (benefit) 364 151 1,044 (860) ---------- ---------- ---------- ---------- Income / (Loss) before cumulative effect of change in accounting principle 583 286 1,717 (1,632) Cumulative effect of change in accounting principle, net of taxes of $501 -- -- (972) -- ---------- ---------- ---------- ---------- Net Income / (Loss) $ 583 $ 286 $ 745 $ (1,632) ========== ========== ========== ========== Earnings / (Loss) per share: Basic earnings / (loss) per share before cumulative effect of change in accounting principle $ 0.07 $ 0.04 $ 0.20 $ (0.22) ========== ========== ========== ========== Basic earnings / (loss) per share $ 0.07 $ 0.04 $ 0.09 $ (0.22) ========== ========== ========== ========== Average number of shares outstanding during the period 8,601,055 7,701,596 8,663,692 7,501,253 ========== ========== ========== ========== Diluted earnings / (loss) per share before cumulative effect of change in accounting principle $ 0.07 $ 0.04 $ 0.20 $ (0.22) ========== ========== ========== ========== Diluted earnings / (loss) per share $ 0.07 $ 0.04 $ 0.09 $ (0.22) ========== ========== ========== ========== Average number of shares outstanding during the period assuming dilution 8,617,187 7,766,998 8,687,986 7,501,253 ========== ========== ========== ==========
See notes to consolidated financial statements. 2 Consolidated Balance Sheets (in thousands, except share data)
February 28, May 31, (Unaudited) (Audited) 2003 2002 ------------ --------- ASSETS: Cash and cash equivalents $ 938 $ 1,102 Accounts and notes receivable-net 51,714 45,469 Inventories - rough diamonds 4,474 9,468 - polished diamonds 66,496 64,833 Prepaid expenses and other current assets 6,439 6,058 Deferred taxes 2,157 2,319 -------- -------- Total Current Assets 132,218 129,249 -------- -------- Non-current assets - net 7,351 9,783 Deferred taxes 8,578 8,955 -------- -------- Total Assets $148,147 $147,987 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Accounts payable and other current liabilities $ 45,037 $ 45,792 -------- -------- Total Current Liabilities 45,037 45,792 -------- -------- Long-term debt 13,071 12,089 -------- -------- Total Liabilities 58,108 57,881 -------- -------- Stockholders' Equity: Preferred stock, par value $.01 per share Authorized 1,500,000 shares; no shares outstanding -- -- Common stock, par value $1 per share Authorized 12,500,000; Issued 8,706,514 and 8,704,860 shares, respectively 8,707 8,705 Additional paid-in capital 61,575 61,567 Cumulative translation adjustment (294) (215) Retained earnings 20,794 20,049 -------- -------- 90,782 90,106 Less: Treasury stock, 145,100 shares at cost (743) -- -------- -------- Total Stockholders' equity 90,039 90,106 -------- -------- Total Liabilities and Stockholders' Equity $148,147 $147,987 ======== ========
See notes to consolidated financial statements. 3 Consolidated Statements of Cash Flows (Amounts in thousands)
Nine Months Ended February 28, (Unaudited) 2003 2002 ------------------ Cash Flows From Operating Activities: Net income / (loss) $ 745 $ (1,632) Adjustments to reconcile net income / (loss) to net cash (used in)/provided by operating activities: Cumulative effect of change in accounting principle 972 Depreciation and amortization 1,125 991 Provision for uncollectible accounts (45) (166) Deferred income taxes 539 (772) Changes in operating assets and liabilities: Accounts receivable (6,200) 5,819 Rough and Polished inventories 3,331 5,682 Prepaid expenses and other current assets (381) 3,372 Other 398 292 Accounts payable and other current liabilities (755) 843 ------------------- Net cash (used in) / provided by operating activities (271) 14,429 ------------------- Cash Flows From Investing Activities: Capital expenditures (63) (111) ------------------- Net cash used in investing activities (63) (111) ---------- -------- Cash Flows From Financing Activities: Decrease in short-term borrowings -- (12,071) Increase / (decrease) in long-term borrowings 982 (13,654) Proceeds from issuance of common stock -- 1,125 Purchase of treasury stock (743) -- Proceeds from sale of treasury stock, net -- 10,351 Proceeds from exercise of stock options 10 4 ------------------- Net cash provided by / (used in) financing activities 249 (14,245) ------------------- Effect of foreign currency translation adjustment (79) (50) ------------------- Net (decrease)/increase in cash (164) 23 Cash and cash equivalents at beginning of year 1,102 1,128 ------------------- Cash and cash equivalents at end of period $ 938 $ 1,151 -------------------
See notes to consolidated financial statements. 4 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 (consisting of normal recurring accruals) necessary to present fairly Lazare Kaplan International Inc.'s operating results for the three and nine months ended February 28, 2003 and 2002 and its financial position as of February 28, 2003. The balance sheet at May 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States 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, 2002. 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 conduct business in foreign countries. Certain subsidiaries are not subject to US Federal income taxes and their provisions have been determined based upon the effective tax rates, if any, in the foreign countries. The Company has not provided deferred taxes on undistributed earnings of the applicable foreign subsidiaries, as the Company has no intention to repatriate earnings. 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 February 28, 2003 is approximately $10,868,000 less a valuation allowance of approximately $133,000 resulting in a net deferred tax asset of $10,735,000. At February 28, 2003 the Company has available U.S. net operating losses of $26.1 million, which expire as follows (in thousands):
Year Net Operating Losses - ---- -------------------- 2007 $ 41 2008 926 2010 371 2012 406 2013 2,097 2019 12,268 2020 298 2021 120 2022 9,560 ------- $26,087 -------
5 3. Earnings 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.
Three Months Ended Nine Months Ended February 28, February 28, 2003 2002 2003 2002 --------- --------- --------- --------- Average number of shares outstanding during the period 8,601,055 7,701,596 8,663,692 7,501,253 Effect of dilutive stock options 16,132 65,402 24,294 -- --------- --------- --------- --------- Average number of shares outstanding during the period assuming dilution 8,617,187 7,766,998 8,687,986 7,501,253 ========= ========= ========= =========
4. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (Statement 130) established rules for the reporting and display of comprehensive income and its components. Statement 130 requires foreign currency translation adjustments to be included in other comprehensive income. For the three months ended February 28, 2003 and 2002, total comprehensive income was $524,000 and $312,000, respectively. For the nine months ended February 28, 2003 and 2002, total comprehensive income / (loss) was $666,000 and $(1,682,000), respectively. 5. Lines of Credit The Company entered into a new long-term unsecured, revolving loan agreement in August 2002. The new agreement provides that the Company may borrow up to $30 million in the aggregate through December 1, 2004. The loan term may be extended in one year increments commencing November 30, 2003, subject to the consent of the lending banks. Borrowings under this agreement bear interest at (a) the higher of the banks base rate or one half of one percent above the Federal Funds Effective Rate, or (b) 160 basis points above LIBOR. The applicable interest rate is contingent upon the method of borrowing selected by the Company. The proceeds of this facility are available for working capital purposes. The loan agreement contains certain provisions that require, among other things, (a) maintenance of defined levels of working capital, net worth and profitability, (b) limitations on borrowing levels, investments and capital expenditures and (c) limitations on dividends and the repurchase of treasury shares. The proceeds of this facility are available for the Company's working capital needs. There were no outstanding borrowings under this loan agreement at February 28, 2003. The Company also has a $25 million and a $15 million unsecured, uncommitted line of credit with a bank. Borrowings under the $25 million line bear interest at a rate 160 basis points above the 90 day LIBOR. Borrowings under the $15 million line bear interest at a rate 150 basis points above the bank's base rate. Borrowings under these lines are available for the Company's 6 working capital requirements and are payable on demand. Outstanding borrowings under these lines amounted to approximately $5.4 million at February 28, 2003. A subsidiary of the Company maintains a loan facility that enables it to borrow up to 1.1 billion Japanese yen at an interest rate 1% above Japanese LIBOR. In November 2002, the loan was amended extending its term through November 2004. The loan contains provisions that, among other things, require the Company to maintain a minimum debt to equity ratio. Borrowings under the facility are available for general working capital purposes and are guaranteed by the Company. Outstanding borrowings under this line amounted to approximately $7.7 million at February 28, 2003. 6. Sales to Related Parties During the nine month period ended February 28, 2003 the Company sold approximately $1.2 million of jewelry items to a non-employee member of the Company's board of directors. 7. Cumulative Effect of Change in Accounting Principle On June 1, 2002 the Company adopted Financial Accounting Standards Board Standard No. 142, Goodwill and Other Intangible Assets ("Statement 142"). As a result, the Company ceased amortization of goodwill and other indefinite lived intangible assets. Under the transition provision of Statement 142 the Company completed its evaluation of goodwill and indefinite lived assets during the quarter ended November 30, 2002, using a discounted cash flow methodology. As a result of testing goodwill impairment in accordance with Statement 142, as of June 1, 2002, the Company recorded a non-cash charge of approximately $1.5 million ($972,000 after tax, or $0.11 per share), which has been reported under the caption "Cumulative Effect of a Change in Accounting Principle. The charge relates to the Company's operations in Japan (Far East Segment). The effects on earnings and earnings per share of excluding such goodwill amortization from the third quarter and first nine months of fiscal 2002 follow:
Three months Nine months ended ended February 28, 2002 2002 ------------ ----------- Earnings, as reported (000's) $ 286 $(1,632) Earnings per share, as reported Basic $0.04 $ (0.22) Diluted $0.04 $ (0.22) Earnings, excluding goodwill amortization (000's) $ 318 $(1,536) Earnings per share, excluding goodwill amortization Basic $0.04 $ (0.20) Diluted $0.04 $ (0.20)
8. New Accounting Pronouncements In December 2002, the Financial Accounting Standards Board issued Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure ("Statement 148"). Statement 148 amends Statement 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, this statement requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for, and the effect of the method used on reported results. Statement 148 is effective for fiscal years beginning after December 15, 2002, which for the Company will be effective June 1, 2003, at which time the Company will adopt additional interim disclosures. 7 9. Geographic Segment Information Revenue, gross profit and income/(loss) before income taxes and cumulative effect of change in accounting principle for the three months ended February 28, 2003 and 2002 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):
North Far Elimi- Consoli- America Europe Africa East nations dated --------------------------------------------------------- Three months ended February 28, 2003 Net sales to unaffiliated customers $23,858 $26,458 $ -- $2,538 $ -- $52,854 Transfers between geographic areas 9,950 235 -- -- (10,185) -- --------------------------------------------------------- Total revenue $33,808 $26,693 $ -- $2,538 $(10,185) $52,854 ========================================================= Gross Profit $ 5,084 $ 418 $(32) $ 554 $ -- $ 6,024 ========================================================= Income/(loss) before income taxes and cumulative effect of change in accounting principle $ 1,141 $ (15) $(80) $ (99) $ -- $ 947 ========================================================= ============================================================================================================
North Far Elimi- Consoli- America Europe Africa East nations dated -------------------------------------------------------- Three months ended February 28, 2002 Net sales to unaffiliated customers $30,464 $15,082 $(156) $2,901 $ -- $48,291 Transfers between geographic areas 7,782 24 -- -- (7,806) -- -------------------------------------------------------- Total revenue $38,246 $15,106 $(156) $2,901 $(7,806) $48,291 ======================================================== Gross Profit $ 5,161 $ 301 $(175) $ 544 $ -- $ 5,831 ======================================================== Income/(loss) before income taxes and cumulative effect of change in accounting principle $ 910 $ 65 $(336) $ (202) $ -- $ 437 ======================================================== ===========================================================================================================
8 9. Geographic Segment Information (continued) Revenue, gross profit and income/(loss) before income taxes and cumulative effect of change in accounting principle for the nine months ended February 28, 2003 and 2002 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):
North Far Elimi- Consoli- America Europe Africa East nations dated ---------------------------------------------------------- Nine months ended February 28, 2003 Net sales to unaffiliated customers $ 82,958 $67,381 $ -- $8,150 $ -- $158,489 Transfers between geographic areas 19,485 412 -- (19,897) -- ---------------------------------------------------------- Total revenue $102,443 $67,793 $ -- $8,150 $(19,897) $158,489 ========================================================== Gross Profit $ 14,938 $ 1,013 $ (336) $1,830 $ -- $ 17,445 ========================================================== Income/(loss) before income taxes and cumulative effect of change in accounting principle $ 3,389 $ 3 $ (400) $ (231) $ -- $ 2,761 ========================================================== Identifiable assets at February 28, 2003 $130,594 $ 4,299 $6,480 $6,815 $ (41) $148,147 ========================================================== =============================================================================================================
North Far Elimi- Consoli- America Europe Africa East nations dated ----------------------------------------------------------- Nine months ended February 28, 2002 Net sales to unaffiliated customers $ 86,197 $50,352 $ (156) $9,408 $ -- $145,801 Transfers between geographic areas 29,976 98 -- -- (30,074) -- ----------------------------------------------------------- Total revenue $116,173 $50,450 $ (156) $9,408 $(30,074) $145,801 =========================================================== Gross Profit $ 11,781 $ 1,012 $ (177) $1,823 $ -- $ 14,439 =========================================================== Income/(loss) before income taxes and cumulative effect of change in accounting principle $ (1,559) $ 350 $ (759) $ (524) $ -- $ (2,492) =========================================================== Identifiable assets at February 28, 2002 $135,481 $ 6,253 $10,931 $8,286 $ (117) $160,834 =========================================================== ==============================================================================================================
9 9. Geographic Segment Information (continued) Revenue and gross profit for the three months ended February 28, 2003 and 2002 classified by product were as follows (in thousands):
Polished Rough diamonds diamonds Total -------- -------- ------- Three months ended February 28, 2003 Net Sales $32,973 $19,881 $52,854 ------- ------- ------- Gross Profit $ 5,154 $ 870 $ 6,024 ------- ------- ------- Three months ended February 28, 2002 Net Sales $39,162 $ 9,129 $48,291 ------- ------- ------- Gross Profit $ 5,562 $ 269 $ 5,831 ------- ------- -------
================================================================================ Revenue and gross profit for the nine months ended February 28, 2003 and 2002 classified by product were as follows (in thousands):
Polished Rough diamonds diamonds Total -------- -------- -------- Nine months ended February 28, 2003 Net Sales $103,545 $54,944 $158,489 -------- ------- -------- Gross Profit $ 15,523 $ 1,922 $ 17,445 -------- ------- -------- Nine months ended February 28, 2002 Net Sales $116,546 $29,255 $145,801 -------- ------- -------- Gross Profit $ 14,053 $ 386 $ 14,439 -------- ------- --------
10 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, 2002. 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 for the three and nine months ended February 28, 2003 were $52.9 and $158.5 million, respectively, an increase of $4.6 and $12.7 million, as compared to the prior year. Polished diamond revenue for the three and nine months ended February 28, 2003 was $33.0 and $103.5 million, respectively, as compared to $39.2 and $116.5 million in the prior year. The decrease in polished sales primarily reflects softness in consumer demand attributable to difficult financial conditions in the United States and Southeast Asia. Rough diamond sales were $19.9 and $54.9 million, an increase of $10.8 and $25.7 million for the three and nine months ended February 28, 2003, respectively, as compared to the prior year. The increase from the prior year is attributable to increased sourcing of rough diamonds. Gross Profit During the three months ended February 28, 2003 gross margin on net polished sales was 15.6% compared to 14.2% in the third quarter of last year. For the nine months ended February 28, 2003 gross margin on net polished sales was 15.0% compared to 12.1% in the same period last year. The increase in polished gross margin percentage reflects a shift in the sales mix toward larger higher margin stones and a reduction in sales incentives offered to liquidate slower moving inventory compared to the same period last year. Rough gross margin during the three and nine month periods ended February 28, 2003 was 4.4% and 3.5%, respectively, compared to 2.9% and 1.3% in the comparable prior year periods. The increase in rough gross margin percentage primarily reflects a recovery of trading margins to levels in line with the Company's historical experience. 11 As a result of the foregoing, overall gross margin percentage during the three month period ended February 28, 2003 was 11.4% compared to 12.1% in the third quarter last year. For the nine months ended February 28, 2003 overall gross margin on net sales was 11.0% compared to 9.9% for the same period last year. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three and nine months ended February 28, 2003 were $5.0 and $14.3 million, respectively, as compared to $4.9 and $14.9 million for the same periods in the prior year. The increase for the current quarter and decrease for the nine months ended February 28, 2003 reflects the effect of cost reduction programs offset by increases in insurance costs. Interest Expense Net interest expense for the three and nine months ended February 28, 2003 was $87,000 and $368,000, respectively, as compared to $467,000 and $2,004,000 for the same periods in the prior year. The decrease was due to reduced levels of borrowing and lower interest rates during the current period compared to the same period last year. Income Tax The Company's effective tax rate for nine months ended February 28, 2003 was 37.8% as compared to 34.5% for the prior year. This increase is primarily attributable to increased income in higher tax rate jurisdictions. Liquidity and Capital Resources The Company's working capital at February 28, 2003 was $87.2 million, which was $3.7 million greater than its working capital at May 31, 2002. This increase primarily reflects an increase in current assets derived from earnings before non-cash charges. The Company maintains a $30 million long-term unsecured, revolving credit facility that it utilizes for general working capital purposes. It also maintains $40 million of uncommitted lines of credit (approximately $5.4 million outstanding at February 28, 2003) that are used to finance rough inventory transactions and other working capital needs. In addition, the Company has a 1.1 billion Yen denominated facility (approximately $7.7 million outstanding at February 28, 2003) that is used in support of its operations in Japan. Stockholders' equity was $90.0 million at February 28, 2003 as compared to $90.1 million at May 31, 2003. No dividends were paid to stockholders during the nine months ended February 28, 2003. The Company believes that it has the ability to meet its current and anticipated financing needs for the next twelve months. 12 Cumulative Effect of Change in Accounting Principle On June 1, 2002 the Company adopted Financial Accounting Standards Board Standard No. 142, Goodwill and Other Intangible Assets ("Statement 142"). As a result, the Company ceased amortization of goodwill and other indefinite lived intangible assets. Under the transition provision of Statement 142 the Company completed its evaluation of goodwill and indefinite lived assets during the quarter ended November 30, 2002, using a discounted cash flow methodology. As a result of testing goodwill impairment in accordance with Statement 142, as of June 1, 2002, the Company recorded a non-cash charge of approximately $1.5 million ($972,000 after tax, or $0.11 per share), which has been reported under the caption "Cumulative Effect of a Change in Accounting Principle". The charge relates to the Company's operations in Japan (Far East Segment). The effects on earnings and earnings per share of excluding such goodwill amortization from the third quarter and first nine months of fiscal 2002 follow:
Three months Nine months ended ended February 28, -------------------------- 2002 2002 ------------ ----------- Earnings, as reported (000's) $ 286 $(1,632) Earnings per share, as reported Basic $0.04 $ (0.22) Diluted $0.04 $ (0.22) Earnings, excluding goodwill amortization (000's) $ 318 $(1,536) Earnings per share, excluding goodwill amortization Basic $0.04 $ (0.20) Diluted $0.04 $ (0.20)
New Accounting Pronouncements In December 2002, the Financial Accounting Standards Board issued Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure ("Statement 148"). Statement 148 amends Statement 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, this statement requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for, and the effect of the method used on reported results. Statement 148 is effective for fiscal years beginning after December 15, 2002, which for the Company will be effective June 1, 2003, at which time the Company will adopt additional interim disclosures. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK At February 28, 2003, the Company had borrowings totaling approximately $13.1 million outstanding under various credit agreements. The interest rates on these borrowings are variable and therefore the general level of U.S. and foreign interest rates affects interest expense. Increases in interest expense resulting from an increase in interest rates could impact the Company's results of operations. The Company's policy is to take actions that would mitigate such risk when appropriate. These actions include staggering the term and rate of its borrowings to match anticipated cash flows and movements in interest rates. For further discussion of market risk, 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, 2003. 13 ITEM 4. CONTROLS AND PROCEDURES As of February 28, 2003, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of February 28, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to February 28, 2003. 14 PART 2 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits (99.1) Certification of Leon Tempelsman, Vice Chairman of the Board and President, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (99.2) Certification of William H. Moryto, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (B) Reports on Form 8-K None 15 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/ William H. Moryto -------------------------------- William H. Moryto Vice President and Chief Financial Officer Dated: April 11, 2003 16 I, Leon Tempelsman, Certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lazare Kaplan International Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function); a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 11, 2003 By: /s/ Leon Tempelsman ------------------------------- Leon Tempelsman (Chief Executive Officer) 17 I, Wiliam H. Moryto, Certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lazare Kaplan International Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function); a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 11, 2003 By: /s/ William H. Moryto ------------------------------- William H. Moryto (Chief Financial Officer) 18 EX-99 3 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION OF PERIODIC FINANCIAL REPORTS OF LAZARE KAPLAN INTERNATIONAL INC. I, Leon Tempelsman, Vice Chairman of the Board and President of Lazare Kaplan International Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2003 (the "Periodic Report") which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and (2) information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Lazare Kaplan International Inc. This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Periodic Report. Dated: April 11, 2003 /s/ Leon Tempelsman ----------------------------------- Leon Tempelsman (Chief Executive Officer) EX-99 4 ex99-2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION OF PERIODIC FINANCIAL REPORTS OF LAZARE KAPLAN INTERNATIONAL INC. I, William H. Moryto, Vice President and Chief Financial Officer of Lazare Kaplan International Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2003 (the "Periodic Report") which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and (2) information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Lazare Kaplan International Inc. This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Periodic Report. Dated: April 11, 2003 /s/ William H. Moryto ----------------------------------- William H. Moryto (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----