-----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, PntxRB4UiTN87/72UObtXlA2a206mDgpANb30PQh8NpD97iwLG/FL5/5w40U656h qIGO0UClwz/vt4ILTQ/FIA== 0000950117-99-000766.txt : 19990415 0000950117-99-000766.hdr.sgml : 19990415 ACCESSION NUMBER: 0000950117-99-000766 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 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: SEC FILE NUMBER: 001-07848 FILM NUMBER: 99593379 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 LAZARE KAPLAN INTERNATIONAL INC. FORM 10-Q 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, 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 March 31, 1999, 8,486,593 shares of the registrant's common stock were outstanding. PART 1 - FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Statements of Operations (in thousands except share and per share data)
Three Months Ended Nine Months Ended February 28, February 28, (unaudited) (unaudited) 1999 1998 1999 1998 ---- ---- ---- ---- Net Sales $47,045 $60,627 $190,595 $152,719 Cost of Sales 43,182 56,960 179,796 142,340 ------ ------ ------- ------- Gross Profit 3,863 3,667 10,799 10,379 ------ ------ ------- ------- Selling, General & Administrative Expenses 3,751 3,302 11,034 10,069 Interest Expense - net 524 574 1,933 1,576 ------ ------ ------- ------- 4,275 3,876 12,967 11,645 ------ ------ ------- ------- Income/(loss) before taxes, and minority interest (412) (209) (2,168) (1,266) Income tax provision/(benefit) (675) 62 (1,257) 12 ------ ------ ------- ------- Income/(loss) before minority interest in loss of consolidated subsidiary 263 (271) (911) (1,278) Minority interest in loss of consolidated subsidiary -- (316) -- (868) ------- ------- -------- -------- Net Income/(Loss) $ 263 $ 45 $ (911) $ (410) ======= ======= ======== ======== Basic earnings/(loss) per share $ 0.03 $ 0.01 $ (0.11) $ (0.05) ======= ======= ======== ======== Average number of shares outstanding during the period 8,486,593 8,511,487 8,509,679 8,489,338 ========= ========= ========= ========= Diluted earnings/(loss) per share $ 0.03 $ 0.01 $ (0.11) $ (0.05) ========= ========= ========= ========= Average number of shares outstanding during the period 8,523,646 8,649,298 8,509,679 8,489,338 ========= ========= ========= =========
See Notes to Consolidated Financial Statements. 2 Consolidated Balance Sheets
February 28, 1999 May 31, 1998 (Unaudited) (in thousands,except per share data) ASSETS CURRENT ASSETS Cash $ 6,206 $ 1,222 Accounts receivable - net 36,499 37,747 Inventories - rough diamonds 22,940 23,843 - polished diamonds 52,490 57,675 Prepaid expenses and other current assets 14,871 12,640 Deferred tax assets 5,045 3,785 -------- -------- TOTAL CURRENT ASSETS 138,051 136,912 NON-CURRENT ASSETS $ 11,225 $ 5,418 -------- -------- $149,276 $142,330 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable & other current liabilities $ 14,398 $ 25,160 -------- -------- TOTAL CURRENT LIABILITIES 14,398 25,160 SENIOR NOTES AND OTHER LONG TERM DEBT 42,468 23,560 DEFERRED TAX LIABILITIES 150 150 -------- -------- TOTAL LIABILITIES 57,016 48,870 -------- -------- STOCKHOLDERS' EQUITY Preferred stock, par value $0.1 per share, Authorized 5,000,000 shares; no shares outstanding -- -- Common stock, par value $1 per share Authorized 20,000,000 shares; issued 8,535,493 and 8,534,549 shares 8,535 8,535 Additional paid-in capital 58,149 58,145 Foreign currency translation adjustment 63 -- Retained earnings 25,891 26,802 -------- -------- 92,638 93,482 Less treasury stock, 48,900 and 2,000 shares at cost (378) (22) -------- --------- TOTAL STOCKHOLDERS' EQUITY 92,260 93,460 -------- --------- $149,276 $142,330 ======== =========
See Notes to Consolidated Financial Statements. 3 Consolidated Statements of Cash Flows
Nine Months Ended February 28, (unaudited) 1999 1998 ---- ---- (in thousands) Cash Flows From Operating Activities: Net Income/(Loss) $ (911) $ (410) Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Depreciation and amortization 687 1,776 Provision for uncollectible accounts 45 45 Minority interest in loss of consolidated subsidiary -- (868) Benefit from deferred income taxes (1,260) (160) (Increase)/decrease in assets and increase/ (decrease) in liabilities: Accounts receivable 1,203 4,752 Inventories 6,088 (19,471) Prepaid expenses and other current assets (2,231) (263) Non-current assets (4,387) 62 Accounts payable and other current liabilities (10,762) 9,564 -------- ------- Net cash used in operating activities (11,528) (14,297) -------- ------- Cash Flows From Investing Activities: Capital expenditures (2,107) (1,764) ------- ------- Net cash used in investing activities (2,107) (1,764) ------- ------- Cash Flows From Financing Activities: Purchase of Treasury stock (356) -- Decrease in short-term borrowings -- (1,343) Increase/(decrease) in long-term borrowings 18,908 10,350 Proceeds from exercise of stock options 4 212 ------- ------- Net cash provided by financing activities 18,556 9,219 ------- ------- Effect of foreign currency translation adjustment 63 -- ------- ------- Net increase/(decrease) in cash 4,984 6,842 Cash at beginning of year 1,222 10,338 ------- ------- Cash at end of period $ 6,206 $ 3,496 ======= =======
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 necessary to present fairly Lazare Kaplan International Inc.'s operating results for the nine months and three months ended February 28, 1999 and 1998 and the financial position as of February 28, 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 subsidiaries do business in foreign countries. The subsidiaries are not subject to federal income taxes and their provisions have been determined based upon the effective tax rates, if any, in the foreign countries. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss carryforwards. The Company's net deferred tax asset, which is comprised primarily of operating loss carryforwards is approximately $5,480,000 less a valuation allowance of approximately $585,000 resulting in a net deferred tax asset of $4,895,000. For the nine months ended February 28, 1999, the Company generated approximately $1,350,000 of net operating losses which can be used to offset future Federal, state and local income taxes. Additionally, during the three months ended February 28, 1999, the Company reversed approximately $500,000 of the valuation allowance previously established against the Company's deferred tax asset. 5 Taxes (continued) At February 28, 1999 the Company has available U.S. net operating losses of $10.35 million which expire as follows:
Year Amount ---- ------ 2000 $2,000,000 2001 3,500,000 2002 500,000 2007 500,000 2008 900,000 2010 400,000 2013 1,200,000 2014 1,350,000 ----------- $10,350,000 ===========
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/(loss) per share is computed based upon the weighted average number of common shares outstanding. Diluted earnings/(loss) per share includes the impact of dilutive stock options. 4. Sale of interest in Lazare Kaplan Botswana (Pty) Ltd. In March 1998, the Company completed the sale of its 60% interest in Lazare Kaplan Botswana (Pty) Ltd. for a price of $11.1 million in cash and recorded a net gain, after Botswana taxes, of approximately $3.7 million on the transaction. Through March 1998, the Company consolidated the accounts of Lazare Kaplan Botswana (Pty) Ltd. Minority interest represented the minority stockholders' proportionate share of the results of operations of Lazare Kaplan Botswana (Pty) Ltd. 5. Comprehensive Income/(Loss) As of June 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on the Company's net income/(loss) or stockholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. For the three months ended February 28, 1999, total comprehensive income 6 Comprehensive income/(Loss) (continued) was $448,000 and for the nine months ended February 28, 1999, total comprehensive loss was $848,000. 6. Accounting for Costs of Computer Software Developed or Obtained for Internal Use As of December 1, 1998, the Company adopted SOP 98-1, "Accounting for the Costs of Computer Software Developed For or Obtained For Internal Use." The SOP requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. As a result of adopting this SOP, the Company capitalized approximately $500,000 related to internal use software development projects. 7 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, 1998. 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 nine months ended February 28, 1999 were $190.6 million compared to $152.7 million in sales during the comparable period last year. For the three month period ended February 28, 1999 net sales were $47.0 million compared to $60.6 million in the third quarter last year. Revenue from the sale of polished diamonds was $82.8 million for the nine months February 28, 1999 compared to $59.3 million in the comparable period last year. For the three month period ended February 28, 1999 polished diamond sales were $28.6 million compared to $19.6 million in the third quarter last year. The increase during the three months ended February 28, 1999 was due to increased volume in the United States, Japan and Southeast Asia. For the nine months ended February 28, 1999, the increase was primarily due to increased sales of large gem quality polished stones from the Company's factory in Russia, continued strong sales throughout the United States and sales increases in Japan, partially offset by weaker sales volume earlier in the year in Southeast Asia. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Rough diamond sales were $107.8 million for the nine months ended February 28, 1999 compared to $93.4 million in the comparable period last year. For the three months ended February 28, 1999 rough diamond sales were $18.5 million compared to $41.0 million in the third quarter last year. The decrease in the third quarter was primarily attributable to lower purchases and sell through, particularly in Angola, where fewer diamonds were available at prices the Company was prepared to pay due to increased rebel fighting, heavy rainfall and increased competition. In addition, the decrease was caused by continued lower sales of better quality rough diamonds to the marketplace by DeBeers, one of the Company's principal rough diamond suppliers. Gross Profit During the nine months ended February 28, 1999, gross margin on net polished sales was 11.5%, compared to 10.9% in the comparable period last year. For the three months ended February 28, 1999 gross margin on net polished sales was 13.0% compared to 8.8.% in the third quarter last year. Despite these increases, polished diamond margins continued to be impacted by firm rough diamond prices resulting from market supply curtailments by DeBeers as well as softer polished diamond selling prices due to overall reduced demand in the Southeast Asian market. During the nine months ended February 28, 1999 overall (both polished and rough diamond) gross margin on net sales was 5.7% compared to 6.8% for the same period last year. For the three months ended February 28, 1999, overall gross margin on net sales was 8.2% compared to 6.1% in the third quarter last year. The decrease from the prior year was primarily due to the lower margins realized on rough diamond sales during the nine months. The increase for the three months ended February 28, 1999 was a result of the increase in polished diamond sales as a percentage of total sales as compared with the third quarter last year. Selling, General and Administrative Expenses Selling, general and administrative expenses for the nine months ended February 28, 1999 were $11.0 million, compared to $10.1 million for this period last year. For the three months ended February 28, 1999 selling, general and administrative expenses were $3.8 million compared to $3.3 million in the third quarter last year. The increases in both the nine and three months ended February 28, 1999 were primarily attributable to the opening of 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) the Company's sales office in Japan in the current year, partially offset by the capitalization of salary and benefit costs for those employees directly involved with the Company's implementation of its new computer system. Interest Expense Net interest expense for the nine month period ended February 28, 1999 was $1.9 million compared to $1.6 million last year. For the three months ended February 28, 1999 net interest expense was $524,000 compared to $574,000 in the third quarter last year. The increase for the nine months was due to an increase in the average balance outstanding on the Company's revolving loan combined with lower interest income in the current year. Liquidity and Capital Resources The Company's working capital at February 28, 1999 was $123.7 million, which was $11.9 million more than its working capital at May 31, 1998. The increase was due to lower current liabilities in the current year. The Company believes that it has the ability to meet its current and anticipated financing needs for the next twelve months. Stockholders' equity was $92.3 million at February 28, 1999 as compared to $93.5 million at May 31, 1998. No dividends were paid to stockholders during the nine months ended February 28, 1999. During the nine months ended February 28, 1999, the Company purchased 46,900 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. The majority of the costs of this implementation will be capitalized by the Company. The Company is utilizing both internal and external resources to implement and test its new software and hardware. Management anticipates that the project will be substantially complete by August 31, 1999. The total cost of this project is expected to be approximately $3.0 million. As of 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) February 28, 1999, the Company has incurred and capitalized approximately $2.6 million in connection with the project which includes approximately $500,000 of salary and benefit costs for employees who are directly involved with the project as well as interest costs capitalized in accordance with SOP 98-1 "Accounting for Costs of Computer Software Developed or Obtained for Internal Use." In addition the Company has identified its significant suppliers and other third party service providers and has initiated formal communications during the third quarter to determine the extent to which the Company's operations may be vulnerable to the failure of those third parties to remediate their own Year 2000 issues. Contingency plans in the event of unsuccessful implementation of the above project or noncompliance of any of the Company's primary service providers have yet to be developed, but will be developed in the coming months. The costs of the computer project and the time frame in which the Company believes it will complete installation of its new computer system, including the Year 2000 compliance, are based on management's best estimates; however, there can be no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits (27) Financial Data Schedule (B) Reports on Form 8-K None 12 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: April 14, 1999 13 EX-27 2 ART.5 FDS FOR THIRD QUARTER FORM 10-Q
5 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. 1,000 9-MOS MAY-31-1999 FEB-28-1999 6,206 0 36,686 187 75,430 138,051 14,099 7,781 149,276 14,398 42,468 8,535 0 0 83,725 149,276 190,595 190,595 179,796 179,796 11,034 0 1,933 (2,168) (1,257) (911) 0 0 0 (911) (0.11) (0.11)
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