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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