0000950117-01-501371.txt : 20011019
0000950117-01-501371.hdr.sgml : 20011019
ACCESSION NUMBER: 0000950117-01-501371
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010831
FILED AS OF DATE: 20011011
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: 1756770
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
a31450.txt
LAZARE KAPLAN 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 AUGUST 31, 2001.
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 September 30, 2001, 7,367,691 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
August 31,
(Unaudited)
2001 2000
-------------- ---------------
Net sales $ 51,056 $ 77,575
Cost of Sales 47,456 68,871
---------- ----------
Gross profit 3,600 8,704
Selling, general and administrative expenses 5,483 5,645
Interest expense (net) 775 1,361
---------- ----------
6,258 7,006
---------- ----------
Income / (loss) before taxes (2,658) 1,698
---------- ----------
Income tax (benefit) / expense (995) 665
---------- ----------
Net Income / (Loss) $ (1,663) $ 1,033
========== ==========
Earnings / (Loss) per share:
Basic earnings / (loss) per share $ (0.23) $ 0.13
========== ==========
Average number of shares outstanding during the period 7,367,691 7,949,268
========== ==========
Diluted earnings / (loss) per share $ (0.23) $ 0.13
========== ==========
Average number of shares outstanding during the period
assuming dilution 7,367,691 8,002,933
========== ==========
See Notes to Consolidated Financial Statements.
2
Consolidated Balance Sheets
(in thousands, except share data)
August 31, May 31,
2001 2001
(Unaudited)
------------- ------------
ASSETS:
Cash and cash equivalents $ 1,548 $ 1,128
Accounts receivable-net 59,067 60,436
Inventories - rough diamonds 16,411 16,541
- polished diamonds 77,784 67,103
Prepaid expenses and other current assets 7,045 8,016
Deferred taxes 4,819 4,512
-------- --------
Total Current Assets 166,674 157,736
-------- --------
Non-current assets - net 11,716 12,027
Deferred taxes 6,752 6,155
-------- --------
Total Assets $185,142 $175,918
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Accounts payable and other current liabilities $ 41,271 $ 44,287
Notes payable - other and current portion
of long-term debt 25,953 12,071
-------- --------
Total Current Liabilities 67,224 56,358
-------- --------
Long-term debt 39,718 39,626
-------- --------
Total Liabilities 106,942 95,984
-------- --------
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 8,549,441 shares 8,549 8,549
Additional paid-in capital 58,213 58,213
Cumulative translation adjustment (189) (118)
Retained earnings 19,612 21,275
-------- --------
86,185 87,919
Less treasury stock, 1,181,750
shares at cost (7,985) (7,985)
-------- --------
Total Stockholders' equity 78,200 79,934
-------- --------
Total Liabilities and Stockholders' Equity $185,142 $175,918
======== ========
See Notes to Consolidated Financial Statements.
3
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
August 31,
2001 2000
------------------------------
(Unaudited)
Cash Flows From Operating Activities:
Net income / (loss) $ (1,663) $ 1,033
Adjustments to reconcile net income / (loss) to
net cash provided by/(used in) operating activities:
Depreciation and amortization 390 422
Provision for uncollectible accounts (87) 20
Deferred income taxes (904) 577
Changes in operating assets and liabilities:
Accounts and notes receivable 1,456 7,138
Inventories (10,551) (1,495)
Prepaid expenses and other current assets 883 (679)
Non-current assets 61 5,493
Accounts payable and other current liabilities (3,016) (1,794)
-------- --------
Net cash provided by/(used in) operating activities (13,431) 10,715
-------- --------
Cash Flows From Investing Activities:
Capital expenditures (52) (412)
-------- --------
Net cash used in investing activities (52) (412)
-------- --------
Cash Flows From Financing Activities:
Increase/(decrease) in short-term borrowings 13,882 (10,785)
Increase/(decrease) in long-term borrowings 92 (746)
Purchase of treasury stock -- (1,597)
-------- --------
Net cash (used in)/provided by financing activities 13,974 (13,128)
-------- --------
Effect of foreign currency translation adjustment (71) (22)
-------- --------
Net increase/(decrease) in cash 420 (2,847)
Cash at beginning of year 1,128 7,254
-------- --------
Cash at end of period $ 1,548 $ 4,407
======== ========
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 months ended August 31, 2001 and 2000 and its financial position
as of August 31, 2001.
The balance sheet at May 31, 2001 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, 2001. The operating results for
the interim periods presented are not necessarily indicative of the operating
results for a full year.
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. Taxes
The Company's subsidiaries conduct 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 as of August 31, 2001 is
approximately $11,823,000 less a valuation allowance of approximately $252,000
resulting in a net deferred tax asset of $11,571,000.
At August 31, 2001 the Company has available U.S. net operating losses of $14.6
million, which expire as follows (in thousands):
Year Amount
---- ------
2013 $ 2,054
2019 12,268
2020 298
-------
$14,620
=======
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.
5
4. Comprehensive Income
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
three months ended August 31, 2001 and 2000, total comprehensive income/(loss)
was $(1,734,000) and $1,011,000, respectively.
5. Lines of Credit
In October 2001, the Company amended certain terms of its $40 million long-term
unsecured, revolving loan agreement. The amendment extends the term of the loan
through September 1, 2003.
The loan agreement contains provisions that require, among other things, (a)
maintenance of defined levels of working capital, annual cash flow and earnings,
(b) limitations on borrowing levels, capital expenditures, and rental
obligations, and (c) limitations on restricted payments, including dividends.
Interest on borrowings is a function of either the bank's prime rate, its cost
of funds or the London Interbank Offered Rate (LIBOR) and varies depending on
the term and method of borrowing selected by the Company. The weighted average
interest rate on outstanding borrowings under the loan agreement at August 31,
2001 was 5.6%. The proceeds of this facility are available for the Company's
working capital needs.
6
6. Geographic Segment Information
Revenue, gross profit and income/(loss) before income taxes for the three months
ended August 31, 2001 and 2000 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 August 31, 2001
Net sales to unaffiliated customers $ 28,381 $19,631 $ -- $3,044 $ -- $ 51,056
Transfers between geographic areas 8,837 -- (8,837) --
-------- ------- ------- ------ ------- --------
Total revenue $ 37,218 $19,631 $ -- $3,044 $(8,837) $ 51,056
======== ======= ======= ====== ======= ========
Gross Profit $ 2,646 $ 410 $ -- $ 544 $ -- $ 3,600
======== ======= ======= ====== ======= ========
Income/(loss) before income taxes $ (2,271) $ 122 $ (283) $ (226) $ -- $ (2,658)
======== ======= ======= ====== ======= ========
Identifiable assets at August 31, 2001 $152,567 $ 9,076 $13,954 $9,686 $ (141) $185,142
======== ======= ======= ====== ======= ========
--------------------------------------------------------------------------------
North Far Elimi- Consoli-
America Europe Africa East nations dated
-------------------------------------------------------------------------
Three months ended August 31, 2000
Net sales to unaffiliated customers $ 39,809 $ 34,298 $ 15 $ 3,453 $ -- $ 77,575
Transfers between geographic areas 11,553 10,022 -- -- (21,575) --
-------- -------- -------- -------- -------- --------
Total revenue $ 51,362 $ 44,320 $ 15 $ 3,453 $(21,575) $ 77,575
======== ======== ======== ======== ======== ========
Gross Profit $ 7,845 $ 416 $ (83) $ 526 $ -- $ 8,704
======== ======== ======== ======== ======== ========
Income/(loss) before income taxes $ 3,128 $ (312) $ (370) $ (748) $ -- $ 1,698
======== ======== ======== ======== ======== ========
Identifiable assets at August 31, 2000 $152,986 $ 12,880 $ 9,585 $ 13,545 $ (208) $188,788
======== ======== ======== ======== ======== ========
7
6. Geographic Segment Information (continued)
Revenue and gross profit for the three months ended August 31, 2001 and 2000
classified by product were as follows (in thousands):
Polished Rough
diamonds diamonds Total
-------- -------- -------
Three months ended August 31, 2001
Net Sales $37,223 $13,833 $51,056
------- ------- -------
Gross Profit $ 3,448 $ 152 $ 3,600
------- ------- -------
Three months ended August 31, 2000
Net Sales $47,074 $30,501 $77,575
------- ------- -------
Gross Profit $ 7,693 $ 1,011 $ 8,704
------- ------- -------
8
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, 2001. 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 three months ended August 31, 2001 were $51.1 million
compared to $77.6 million in sales during the comparable period last year.
Revenue from the sale of polished diamonds was $37.2 million for the three
months ended August 31, 2001 compared to $47.1 million in the comparable period
last year, a decrease of 21%. The decrease in polished sales was primarily due
to lower sales of commercial stones produced in Russia and Lazare Diamonds'r'.
Rough diamond sales were $13.8 million for the three months ended August 31,
2001 compared to $30.5 million in the comparable period last year. The decrease
from the prior year is attributable to reduced rough buying.
Gross Profit
During the three months ended August 31, 2001 gross margin on net polished sales
was $3.5 million, or 9.3%, compared to $7.7 million, or 16.3%, in the comparable
period last year. The decrease in gross margin dollars is largely attributable
to lower sales of Russian stones and Lazare Diamonds'r'. The decrease in
polished gross margin percentage is primarily attributable to lower sales of
larger Lazare Diamonds'r'. Rough gross margin during the three months ended
August 31, 2001 was 1.1% compared to 3.3% in the same period last year. The
decrease in rough gross margin percentage primarily reflects a softening of
market demand for categories of stones that the Company normally sells in rough
form. As a result of the foregoing, overall gross margin percentage declined to
7.1% in the current period compared to 11.2% for the same period last year.
9
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended August
31, 2001 were $5.5 million, compared to $5.6 million for this period last year.
The decrease was primarily attributable to lower compensation and benefits costs
versus the same period last year.
Interest Expense
Net interest expense for the three month period ended August 31, 2001 was
$775,000 compared to $1,361,000 for the prior year. The decrease was due to
reduced levels of borrowing and interest rates during the current period
compared to the same period last year.
Income Tax
The Company's effective tax rate for the three months ended August 31, 2001 was
37.4% compared to 39.2% in the same period last year. This decrease is primarily
attributable to favorable tax rates applicable to certain foreign operations.
Liquidity and Capital Resources
The Company's working capital at August 31, 2001 was $99.5 million, which was
$1.9 million less than its working capital at May 31, 2001.
The Company maintains a $40 million long-term unsecured, revolving credit
facility which it utilizes for general working capital purposes. It also
maintains $40 million of uncommitted lines of credit that are used to finance
rough inventory transactions and other working capital needs. In addition, the
Company has a Yen denominated facility (approximately $ 9.1 million at August
31, 2001) which is used in support of its operations in Japan.
Stockholders' equity was $78.2 million at August 31, 2001 as compared to $79.9
million at May 31, 2001. No dividends were paid to stockholders during the three
months ended August 31, 2001.
The Company believes that it has the ability to meet its current and anticipated
financing needs for the next twelve months.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
At August 31, 2001, the Company had borrowings totaling approximately $65.1
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.
PART 2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
None
(B) Reports on Form 8-K
None
11
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: October 11, 2001
12
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as........................'r'